Self-employed people across the country who were looking forward to the year-end event are complaining about what they feel is an ‘ice age’ in the economy this year.
Sales in the restaurant industry in major commercial districts in Seoul turned negative for the first time since the recovery from COVID-19, and sales across the food service industry nationwide are continuing to decline.
The current slump is due to an absolute lack of demand across the entire commercial district. Events alone cannot solve the problem. Getty Images
The decline in consumption, which began with a special disappearance at the end of the year, has now spread to a level that is shaking the market structure itself.
◆First ‘minus’ since Corona… Declining eating out consumption
According to the restaurant industry statistics on the 13th, Seoul restaurant sales in the second quarter of this year decreased by about 68.8 billion won compared to the previous year, recording a clear negative growth.
The number of restaurant businesses also decreased from 161,242 in 2023 to 157,108 this year, with over 4,000 restaurants closing.
The situation is the same nationwide. Last year, food service market sales decreased by about 3% compared to the previous year. Korean food and general restaurant sales decreased by an average of 3.9%.
This means that daily consumption is decreasing and the frequency of eating out is decreasing.
◆The number of self-employed people decreases by 200,000 in one year… Report of business closure ‘largest ever’
Small business closures have soared to the highest level since statistics were first compiled.
In the past year, the number of self-employed people nationwide has decreased by nearly 200,000. The number of small business owners who reported closure of business last year exceeded 1 million.
Analysis shows that the number of self-employed people falling into a ‘deficit structure’ is rapidly increasing as sales per store decrease and costs rise.
Merchants say this situation is “more severe than the IMF and Corona.”
The perceived worsening of the economy is not a temporary phenomenon, but is leading to changes in the consumption structure of the economy and society as a whole.
◆Even the ‘Soju 10 Won’ event… Experts see it as a sign of collapse
Extreme competition spreads more quickly, especially in new cities.
A commercial district in a new city recently launched an unprecedented event called ‘A bottle of soju costs 10 won.’
However, experts commonly point out that this ‘ultra-low price marketing’ is a sign of market collapse rather than increased sales.
This is why there is a warning that “if you lower the price in a market with insufficient demand, extinction will begin.”
◆Why did the year-end special disappear? Changed household and corporate consumption patterns
This year’s year-end company dinners and gatherings have also decreased noticeably. This is not because of a simple cultural change, but because both companies and households have switched to a ‘cost reduction’ mode.
In particular, the MZ generation’s consumption pattern is changing to ‘frequent consumption, but expensive when used’, which is taking a growing hit on local commercial districts.
As households’ real income decreases due to high interest rates and inflation, optional expenditures such as eating out tend to be the first to decrease.
The problem is that it is not a specific industry.
Regardless of region, sluggish sales are occurring simultaneously in all industries, including restaurants, cafes, and bars. This means that basic consumption in local commercial districts itself has decreased.
The offline restaurant industry is unable to escape the ‘triple pressure’ of competition with the delivery market, rising labor costs, and the burden of food ingredient costs. New town commercial districts are more vulnerable to fluctuations in floating population.
◆“It cannot be resolved through the efforts of individual stores”… Request for structural measures
Experts diagnose the current situation as a ‘structural recession’ that cannot be resolved through the efforts of individual stores.
There is also an analysis that the increase in business closures and the collapse of commercial districts will accelerate without policy intervention such as joint marketing at the commercial district level, rent adjustment, and digital transformation support.
This is a time when survival strategies are needed rather than expansion. The key is to reduce fixed costs and improve turnover. Getty Images
A rebound in restaurant sales is possible only when several variables, including adjustment of household debt, stabilization of interest rates, and recovery of consumer sentiment, improve simultaneously.
Experts also predict that “this is the worst period, and a gradual recovery is possible starting in the second half of the year, focusing on commercial districts that have completed restructuring.”
◆How long will this last? “It may be more difficult until the first half of next year.”
An official in the restaurant industry said, “It’s not that the year-end special has disappeared, but consumption itself has structurally decreased. The decline in household real income is a signal,” and added, “This slump in sales is not a temporary change, but the result of a sharp contraction in the domestic economy.”
He added, “The decline in company dinners should be viewed as a signal for companies to cut costs, not just a change in culture.”
He explained, “The current low-price competition is not a path to survival, but to mutual extinction. Price cuts do not revive demand,” and “In a structure where fixed costs are rising and sales are decreasing, the number of ‘deficit self-employed people’ is rapidly increasing.”
Events such as ‘Soju 10 Won’ are a sign that the market is not normal.
This year, consumers have broadly reduced their spending. This is an environment in which it is difficult to expect a ‘December special’ formula.
The MZ generation is moving toward a pattern of reducing consumption frequency and increasing unit prices. As both companies and households choose to minimize spending, it is highly likely that the slump in self-employment sales will continue for a long time.
The fact that sluggish sales are occurring simultaneously in all regions and all industries means that the ‘basic consumption’ of the commercial district itself has decreased.
The three pressures of delivery competition, labor costs, and rising costs are eroding the profitability of the restaurant industry.
In new city commercial districts, price-destroying competition appears more quickly, especially during periods of consumption contraction.
Another industry insider emphasized, “It cannot be resolved through the efforts of individual stores alone. A joint strategy at the commercial district level is needed,” and added, “A mid- to long-term policy that helps improve digital transformation and cost structure, rather than short-term support, is essential.”
He added, “If the local government does not take action, low-price competition could cause a downturn in the entire local commercial area,” adding, “The situation may become more difficult until consumer sentiment recovers and interest rates are stabilized. There is a possibility that the increase in involuntary business closures will continue until the first half of next year.”
He emphasized, “The current slump is due to an absolute lack of demand in the entire commercial district. Events alone cannot solve the problem. This is a time when a survival strategy is needed rather than expansion. Reducing fixed costs and improving turnover are key.”
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