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South Korea Food and Drink Report Q1 2010
Business Monitor International, Dec 2009, Pages: 63
South Korea Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on South Korea's food and drink industry.
South Korea’s economy continues to improve and as such we have raised our full-year 2009 and 2010 growth forecasts from -1.9% and 1.8% to -1.1% and 3.1%, respectively. However, despite the improved outlook investors continue to exercise caution and as such we have witnessed little in the way of merger, acquisition or expansion activity in the country’s food and beverage industries this quarter.
In fact, the main development in Q409 has concerned outward investment. The country’s mass grocery retail (MGR) sector is fast reaching maturity and the quarter witnessed Lotte Shopping, the retail arm of South Korean conglomerate Lotte Group, acquire Chinese MGR Times. The acquisition is part of the company’s ongoing aim to diversify away from the highly competitive South Korean MGR market. The Chinese MGR sector is particularly appealing as sales growth of 45% is forecast to 2014, this is 11 percentage points higher than the sales growth forecast for the South Korea sector. However, despite increasing market maturity Lotte Shopping is still performing well in South Korea and results for Q309 released demonstrate this; revenue rose 9.4% y-o-y to KRW2.76trn while operating profit climbed 12.5% to KRW166.8bn. This underscores the fact that while China affords stronger growth, South Korea remains an attractive proposition for an established retailer.
Moving to the drinks sector, Q309 saw some interesting activity. In August 2009, the Fair Trade Commission (FTC) fined five of South Korea’s major soft drink producers a combined KRW25.4bn (US$20.3mn) after they were found to have colluded over prices in early 2008. While this is likely to dent the reputation of the companies involved, the effect is only likely to be temporary and with virtually all the market leaders involved in the scandal it is unlikely to have a significant impact on product demand. However, with all eyes now on soft drink prices and with commodity prices rising, soft drink producers will struggle to protect profits by splitting the higher prices with consumers without damaging brand loyalty.
A potential risk to the profit margins of soft drink producers in the short term, the news is also a reminder of the business environment challenges that remain in South Korea, even as it increasingly grows to resemble a developed rather than an emerging market
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