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| A worker checks dumplings at CJ CheilJedang's production facility in Frankfurt, Germany on Oct. 20. Courtesy of CJ CheilJedang |
Global business key to better bottom line
By Kim Jae-heun
While nearly all major food companies here posted higher sales in the third quarter from a year earlier on the back of steep price increases, their operating profits showed mixed results.
Companies that expanded their global businesses were found to have performed better than their peers who are heavily dependent on the domestic market amid the won's falling value against the dollar and soaring import prices of raw materials.
The firms that generate sales in dollars abroad achieved higher sales numbers in terms of the won and were able to weather skyrocketing raw material costs as they purchase the materials with the dollars they earn overseas.
CJ CheilJedang's sales from July to September surpassed 5 trillion won ($3.75 billion) for the first time, which is up by 21.7 percent compared to the same period of last year. Nongshim's revenue also rose 20.8 percent to 813 billion won, Samyang Foods' sales jumped 30.84 percent to 211.5 billion won, Ottogi's sales increased 16.2 percent to 821.6 billion won and Daesang's sales soared 15.9 percent to 1.01 trillion won.
However, the won's weakness against the dollar and a continued rise in raw material prices affected companies like Nongshim, Ottogi and Daesang, whose operating profits suffered double-digit decreases.
Ottogi saw its operating profit fell 16.5 percent, year-on-year to 44.2 billion won in the third quarter. Nongshim's operating profit also fell 6.2 percent to 27.3 billion won and Daesang's operating profit decreased 4 percent to 34.4 billion won in the same period. The sudden increase in raw material prices had a huge impact on earnings.
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| Samyang Foods' production facility in Miryang, South Gyeongsang Province / Courtesy of Samyang Foods |
According to the United Nations' Food and Agriculture Organization (FAO), the grain price index rose for the second consecutive months to 152.3 in October. The index averaged below 100 in 2020, but soared to 125.7 last year. Oil prices are also on the rise again following output reductions by the Organization of the Petroleum Exporting Countries.
In addition, the high exchange rate has increased pressure on Ottogi, Nongshim and Daesang that are highly dependent on imports. Companies that achieve a large proportion of sales overseas benefited from the strong dollar.
CJ CheilJedang and Samgyang Foods, which operate businesses overseas, were able to put up a good defense against the strong US dollar. CJ achieved 386.7 billion won in operating profit in the third quarter, up 20 percent, year-on-year. The food giant is actively engaged in business abroad under its Korean traditional food brand "Bibigo." Samyang Foods' operating profit also increased 27.24 percent to 19.3 billion won in the same period. Samyang Foods has recently grown into a company with a higher proportion of overseas sales than domestic sales due to the popularity of its "Buldak Ramen," or hot chicken flavor noodles.
"Companies that have taken root in overseas markets were able to overcome various negative factors with their global purchasing power. Meanwhile, firms that mainly operate in the local market were directly influenced by the weak won and increased raw material costs ― leaving them failing to improve their operating profit," a source at a local food manufacturing firm said. "There are clear limitations for local food companies to grow only in Korea as the country suffers from sluggish consumption as well as a declining population. Food companies will accelerate their global investments such as expanding production facilities overseas to cope with the current situation."
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