More Korean food conglomerates finding success overseas

Industry

Published: 20 Feb. 2023, 16:07

More Korean food conglomerates finding success overseas

Employees are checking the dumplings made at CJ CheilJedang’s Incheon complex on Feb. 15. [BAEK IL-HYUN]

Korean food conglomerates are actively expanding their businesses overseas to target global consumers, and the numbers are backing their progress.

Four food conglomerates — Lotte Confectionary, SPC Samlip, Ottogi and Nongshim — are joining the club of food companies that generate over 3 trillion won ($2.3 billion) in revenue annually. The original four companies are CJ CheilJedang, Dongwon F&B, Daesang and Hyundai Green Food.

Lotte reported 4.75 trillion won, SPC Samlip 3.31 trillion won, Ottogi 3.2 trillion won and Nongshim 3.13 trillion won.

Their achievements come amid highs in everything from rising interest rates and prices to exchange rates. This was possible because they focused on expanding their market overseas, crushing the old notion that the food industry operates through the domestic market.

CJ CheilJedang reported overseas sales of 5.18 trillion won from food alone last year. The figure accounts for 47 percent of its total annual revenue of 11.1 trillion won.

It’s the first time for a domestic company to take in over 10 trillion won in annual revenue in its food business alone.

Situated in Incheon's Jung District is CJ CheilJedang’s food plant at the frontline of the popular Bibigo dumplings, which sold over 1 trillion won overseas. Currently, there are 36 factories in six countries including the United States, Germany, Japan and Vietnam that produce the dumplings to export worldwide.

During a visit to the Incheon plant Wednesday, a strong odor of a mixture of pork and vegetables, which fill the dumplings, was noticeable right away. Two products — Bibigo mandu, or dumplings, and Mandu Chicken & Cilantro — are produced there.

The factory makes 150 tons of Bibigo dumplings per day.

One dumpling weighs 35 grams and costs 400 won. The secret behind the 1-trillion-won global revenue despite the cheap cost lies in the company’s research and development (R&D). Instead of grinding the ingredients for the fillings, they are sliced. The dumpling skins are kneaded 9,000 times to give them that distinctive chewy texture.

“The chewy taste and texture is one of the reasons why the dumplings are so popular overseas,” said Jang Kwang-mun, the head of CJ CheilJedang’s Food R&D team.

The company’s dumplings occupy 41.4 percent of the U.S. dumplings market. Their chicken and microwaveable rice also sold well overseas.

Daesang, known for its brand Jongga Kimchi, takes up 35 percent of its overseas business, and Lotte Confectionary’s Pepero takes up 19.5 percent.

Dongwon F&B and SPC Samlip are also building up their overseas businesses.

Perhaps the company most actively pursuing the global market is Nongshim.

Its proportion of overseas business jumped 10.8 percentage points to 35.9 percent last year compared to 2017.

“It’s because the demand for K-food escalated and the production scale went up as a second factory in the United States began to fully operate last year,” said a Nongshim spokesperson.

The company runs a total of six production plants in the United States and China.

Workers are checking Nongshim’s Shin Ramyun products at a factory in the United States. [NONGSHIM]

Others are also increasing the number of local factories. Daesang produces its kimchi and other fermented products in 11 factories across the globe including Indonesia, Vietnam, the United States and Poland. Lotte Confectionary has 21 factories overseas.

The No. 1 product from each company ranges from snacks and side dishes to food ingredients such as tuna and ham.

For Dongwon F&B, Dongwon canned tuna was the most-sold product, accounting for 500 billion won in sales.

For Nongshim's ramen brands, Shin Ramyun reported 930 billion won, Chapagetti 220 billion won and Ansungtangmyun 120 billion won in sales.

Lotte Confectionery’s snack brands such as Pepero, popping corn chips and Ghana Chocolate were most popular, each selling over 140 billion won, 73 billion won and 57 billion won a year.

The weakness of these eight companies, however, is their low profitability.

Among the eight companies that recorded over 3 trillion won in revenue, only CJ CheilJedang and Ottogi’s operating profit margin went over the food industry’s average ratio of 5 percent. CJ CheilJedang reported 5.6 percent while Ottogi reported 5.8 percent.

The rest of the six companies’ operating profit margin ranged between 2.7 to 3.6 percent.

The companies say that the rise of costs and prices in raw materials, human resources, logistics, electronic and gas bills led to the decrease in profits.

Escalating costs were the reason why they upped the price of their products last year. Some companies will be bumping up the prices once more this year as well, escalating the number of consumer complaints.

“It’s suspicious whether the companies are overcompensating for the rise in costs and putting it on consumers,” a spokesperson form the Korea National Council of Consumer Organizations said.

CJ CheilJedang’s Bibigo products [CJ CHEILJEDANG]

A rise in food prices directly affects people's daily lives.

Korea’s Engel coefficient in 2021, or the proportion of food costs out of a person's total spending, rose 1.4 percentage points to 12.8 percent compared to 2019, according to a report published by the Korea Economic Research Institute on Thursday.

The increase is higher than the average 0.9 percentage-point increase of Korea, the United Kingdom, Germany, Japan, France and the United States.

Experts say that if companies want to transit to “real” growth from quantity to quality, they should focus on R&D and speed up their trailblazing in the global market instead of relying on relatively easy growth, such as by hiking prices.

“In the long run of growth, food companies should aim for the potential 8 billion global consumers,” said business administration Professor Kim Dae-jong of Sejong University. “They need to focus on developing their future growth factors such as in quality maintenance in an era full of potentials due to the rise of Hallyu, or the Korean Wave.”

BY BAEK IL-HYUN [lee.jaelim@joongang.co.kr]