Korean dairy industry down in the dumps as Purmil readies to bow out

Industry

Published: 21 Oct. 2022, 13:51 Updated: 21 Oct. 2022, 18:16

Korean dairy industry down in the dumps as Purmil readies to bow out

A shopper browses the dairy aisle at a large mart in Seoul on Sept. 12. [NEWS1]

As Purmil, a dairy company formerly under Lotte, announced that it will officially close business at the end of next month, the dairy industry is on high alert should the situation affect the entire industry.

Purmil on Oct. 17 announced that it will close its business on Nov. 30, and sent a company-wide email to its approximately 350 employees informing them that they would be let go.

Purmil, which stood at No. 10 in the domestic dairy industry in terms of market share in 2020, was known for its popular products such as "Milk with Black Soybean" and "Ganachoco Milk." It recorded 179.9 billion won ($125.6 million) in sales last year with an operating loss of 12.3 billion won. Lotte Milk, established in 1978, was spun off from Lotte Ham & Milk in April 2007. The company then changed its name to Purmil in 2009 and has been seeing continued losses since 2018.

Worries abound within the industry due to its grim future prospects, as the market for dairy products is shrinking because of the low birth rate, the inflow of foreign products and the rise of prices of raw and subsidiary materials.

The profitability of even some major domestic dairy companies such as Namyang Dairy Products is getting worse, according to the dairy industry and financial analysts on Wednesday.

Purmil's headquarters in Mullae-dong, Yeongdeungpo District, western Seoul, on Tuesday. [YOO JI-YOEN]

“The dairy industry is in an impossible situation,” said Purmil Chairman Shin Joon-ho, meeting with the JoongAng Ilbo on Tuesday.

Namyang Dairy Products posted a net loss of 27.6 billion won in the first half of this year, 13.3 percent more than the losses from the same period last year.

Maeil Dairies fared better, recording a net profit of 7.1 billion won in the same period, but this was still an 80.7 percent decrease compared to the company’s net profit from the first half of last year.

Seoul Milk also recorded a net profit of 1.6 billion won in the first half of this year but saw a 8.9 percent decrease on year.

“We have sought to find new customers, and there has been some influence that came from raising the price of our milk products in October last year,” said a spokesperson from Seoul Milk.

Dairy industry insiders are worried about the troubles they may face. The outlook for the industry is bleak as the inflow of cheap foreign products is increasing and tariffs on imported dairy products will be virtually eliminated under a free trade agreement in 2026.

Major dairy companies are seeking ways to survive through new endeavors, such as expanding their product lineup and entering markets for functional foods and protein beverages.

Seoul Milk is attempting to diversify its business by branching out into ice creams, frozen pizzas and coffee in cups. Seoul Milk’s ice cream products, launched in 2020, exceeded 8.2 million units in cumulative shipments in August this year. The company is also responding to changes in distribution channels by launching pizza and burritos using 100 percent domestic cheese and introducing big-sized 3-liter milk jugs for sale exclusively online.

Maeil Dairies made similar attempts, including the launch of Selex, an adult nutritional food brand, in 2018, achieving cumulative sales of 200 billion won as of the first half of this year. In addition to protein supplements and beverages, Maeil Dairies also introduced beauty products containing substances extracted from milk. Maeil Health Nutrition, a health and nutrition subsidiary, was established in October last year to develop more new businesses.

Maeil Dairies also actively came out with plant-based products such as soy milk and oat beverages aimed at consumers with lactose intolerance or anyone who prefers vegetarian products. It has also become active in the restaurant businesses, running the coffee franchise Paul Bassett and the Korean branches of Chinese restaurant chain Crystal Jade.

Ildong Foodis, a subsidiary of Ildong Pharmacy that originally specialized in dairy products for children such as baby formula, succeeded in reviving its business through its protein supplement product Himune. After experiencing decreasing sales of baby formula with Korea's continued low birth rate and being in the red for three years from 2017 to 2019, Ildong Foodis launched Himune and made a turnaround with annual sales exceeding 100 billion won.

Namyang Dairy Products is also struggling in the aftermath of the dispute over management rights and the boycott movement of its products, but is seeking future businesses such as functional foods. Take Fit Max, a protein drink introduced in July, has been selling an average of 20,000 units per day since its launch.

“The industry is suffering from the stagnant consumption of dairy products due to the falling birth rate, intensifying competition and the abolition of tariffs for foreign [dairy] products in 2026,” said an employee at a dairy company. “We have no choice but to continue our efforts to diversity profits by developing new products.”

BY BAEK IL-HYUN, LIM JEONG-WON [lim.jeongwon@joongang.co.kr]