5,400 won for cupbap? Food vendors claim weak won makes price hikes 'inevitable'

Ottogi raised the prices of seven flavors of its ready-to-eat rice bowls by 12.5 percent, or 600 won (40 cents), on Feb. 1. The food manufacturer also hiked the prices for its 500-gram (17.6-ounce) beef broth by 20 percent. Pictured are Ottogi's rice bowls displayed at a convenience store in Seoul on Jan. 20. [YONHAP]

 
Food and beverage (F&B) companies are raising their prices, citing the weakened won against the dollar and the increased cost of importing ingredients. Industry insiders say further price hikes are “inevitable” should the local currency’s value continue to stay low.
 
Ottogi raised the prices of seven types of its cupbap, or ready-to-eat rice bowls, by 12.5 percent on Feb. 1. The prices of the manufacturer’s rice bowl flavors, including Ottogi Curry, tuna mayo and tuna with kimchi, has therefore increased by 600 won (40 cents), from 4,800 won to 5,400 won. The manufacturer also raised prices for a 500-gram (17.6-ounce) bag of beef broth sold at convenience stores by 20 percent, or 500 won, from 2,500 won to 3,000 won.

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“In the case of cupbap, some said it would be nice to have a side soup while eating them, so we added a block of instant-boil soup, which is the reason for hiking the prices,” a spokesperson for Ottogi said. “As for the beef broth, [the increased prices] reflect the [price] increase in raw ingredients.”
 
Other F&B companies have increased their prices — as little as under 10 percent, and up to around 20 percent — starting from last year and in the days up to the Lunar New Year. This includes Orion and Haetae with their confectionaries, Dongseo Food with instant coffee, Nongshim with bottled water, Dong-A Otsuka with beverages and Daesang with sauces. Large coffee brands such as Starbucks, Paul Bassett and Hollys also hiked drink prices by 200 to 400 won while fast food franchises Burger King and Mom’s Touch increased their flagship product prices by 100 to 300 won.
 

A barista hands a beverage to a customer at a Starbucks branch in Seoul on Jan. 24. Starbucks Korea raised prices for the tall size of 22 items on its menu, including the popular Americano, by 200 won (15 cents) on Jan. 24. [NEWS1]

 
Firms attributed their price hikes to the weakened currency and increases in the costs of raw ingredients, labor and logistics.
 
One F&B company employee, whose company imports coffee beans from 30 countries, said international coffee bean prices continued to rise last year due to poor crop yields induced by climate change.
 
“The exchange rate increased a lot, and because we purchase the coffee with dollars, the increase in ingredient costs doubled the burden placed on the company,” the worker said.
 
The cost of cocoa beans, largely used to make chocolate and confectionaries, has also significantly jumped.
 
“The company has pushed through by making cost-cutting efforts, such as improving efficiency and integrating purchases, but ultimately had to raise prices because some products would lose money due to increasingly higher cacao prices,” a worker at a confectionary company said.
 
“We temporarily halted the production of items that had costs hiked up too much,” the employee added.
 
Some speculate that the firms are taking advantage of the ongoing political confusion in Korea to quietly inflate their prices, which had been contained by the government, without creating a fuss. During former President Park Geun-hye's impeachment in 2017, the F&B industry increased prices one after another, resulting in an average rise of 7.5 percent that year, double the annual average. Onlookers are now worried about a repeat of that situation.
 
Industry shareholders, however, argue that external factors such as the expensive exchange rate and increased ingredient costs has made price hikes inevitable, regardless of the political situation. They say the firms have had adequate reason to hike prices but been deterred by government requests that F&B companies stabilize inflation during the general election period; prices are just now normalizing.
 

A screen in Hana Bank's trading room in Jung District, central Seoul, shows the won's exchange rate on Jan. 31. [NEWS1]

 
“It’s true that there are often some small price changes in the New Year,” one F&B firm employee said, but added that “there was an emphasis on stabilizing inflation ahead of general elections last year, so there is a tendency right now to raise prices that otherwise should have been increased then.”
 
Orion said it “did not have plans to hike prices” on request from the government but later did so anyways in November, citing an increase in ingredient costs.
 
“The price hike is a reasonable decision based on the rules of supply and demand,” said Seok Byoung-hoon, a professor of economics at Ewha Womans University.
 
“When the government artificially suppresses such price hikes, there might be a temporary cooling effect, but eventually the rise may become steeper to include the amount that could not be accounted for before,” he said.
 
There is a possibility of further price increases if the current trend of high exchange rates continues for an extended period. F&B companies typically stock ingredients for anywhere from three months to a year before using them; using the ingredients bought during a time when the won’s value is low raises costs.
 
“Since most ingredients, such as flour and sugar, are imported, we will have no choice but to consider raising prices should exchange rates remain high during the year,” a F&B industry source said.

BY HWANG SOO-YEON [kim.juyeon2@joongang.co.kr]