As food companies move to raise prices one after another under cost pressures, the burden on consumers has grown. In contrast, the ramen industry, which cut prices in the first half in line with the government's price stabilization stance, is seen as hesitant to decide on price hikes even as cost pressures mount.
According to the food industry on the 24th, CJ CheilJedang(097950) and Sajo Daerim(003960), OTOKI(007310), Harim(136480), and 롯데칠성 beverages recently raised prices on key products in succession. Companies commonly cited the rise in the won–dollar exchange rate (weaker won), higher international grain prices and naphtha, a raw material for packaging such as plastic containers and film, and increases in logistics and labor costs as reasons for the hikes.
By contrast, the ramen industry is said to have no plans yet to raise prices. Still, inside and outside the industry, there are projections that price pressures could grow in the second half if higher costs feed through in earnest.
The ramen industry raised prices once last year and lowered them this year. Nongshim(004370) in March last year raised ex-factory prices for 17 ramen and snack brands, including Shin Ramyun, by an average of 7.2%, and OTOKI in April of the same year raised prices for 27 ramen products, including Jin Ramen, by an average of 7.5%. Samyang Foods(003230) and Paldo Co. also adjusted prices on some products.
However, in March this year, in step with the Blue House and government's price stabilization policy, Nongshim, OTOKI, Samyang Foods, and Paldo Co. cut prices on some ramen products by up to 14.6%. The government asked the food industry to lower prices and cut costs to stabilize food prices, and the ramen industry responded.
The problem is that the cost environment has continued to worsen since then. With instability in the Middle East sending international naphtha prices up more than 20% this month, packaging materials such as plastic containers and film are expected to become more expensive. On top of that, prices of key materials and supplies such as wheat and palm oil, as well as exchange-rate pressures, are persisting.
According to the Bank of Korea's export–import price index, prices of imported raw materials in May this year rose 38.9% from a year earlier, and prices of intermediate goods climbed 26.8%. The growth rate of imported raw materials came in at 40.1% in March, 33.0% in April, and 38.9% in May, topping 30% for three straight months.
In particular, food companies mostly contract for raw and subsidiary materials on a half-year or annual basis, so they expect the higher contracted unit prices to be gradually reflected in production costs starting in the second half, when inventories secured in the first half run down.
While the ramen industry acknowledges that cost pressures are growing, it is maintaining a cautious stance considering the impact on consumer prices. A ramen industry official said, "The exchange rate is rising and costs for raw materials and labor are continuously increasing," adding, "But consumers are very sensitive to ramen prices, so we are not yet at the stage of reviewing price hikes."
Another industry official said, "We expect pressures from the exchange rate, international oil prices, and materials and supplies costs to keep increasing," adding, "For now, we are responding by internally absorbing cost pressures through strategic purchasing and other measures."
◇ Responding with price hikes overseas... "We need to watch the second half"
The ramen industry is partly offsetting domestic difficulties through popularity in overseas markets. Nongshim cut prices at home this year but raised local selling prices in the United States and Japan by around 10% on average in the second half of last year. Samyang Foods also raised prices on products sold in the United States in October last year. Overseas, hikes were unavoidable due to factors such as U.S. tariff policy, and as the brand power of "K" ramen strengthened, price increases were possible. But at home, the government's price stabilization policy and weaker consumption have made pricing decisions difficult.
In fact, thanks to the effect of U.S. price hikes and increased overseas sales, Nongshim offset much of the impact from domestic price cuts. According to Nongshim's first-quarter report, sales at overseas subsidiaries rose 23.1% from a year earlier. At Samyang Foods, overseas sales account for more than 80%, and robust global sales are still driving overall results.
Indeed, ramen exports in the first half hit an all-time high for a half-year period. First-half ramen exports totaled $940 million (about 1.39 trillion won), up 27.9% from last year.
Still, the industry sees a possibility that domestic ramen prices could rise in the second half if cost pressures persist at current levels. Nongshim CEO Cho Yong-cheol said at a press briefing marking the 40th anniversary of Shin Ramyun's launch in May, "Price increases are something to judge carefully, taking into account market conditions and consumer circumstances as a whole," while adding, "It is true that costs for raw and subsidiary materials and logistics have risen due to factors such as Middle East conflicts."
A ramen industry official said, "As the status of K-ramen grows, exports are increasing, but of course it is also important to maintain profitability in the domestic market," adding, "There are no immediate plans to raise prices, but we expect cost pressures to intensify in the second half, so we will watch the situation."