Food consumption is expected to decline due to the Hugobi and Maunja craze.
There is no clear plan to promote consumption… Cost burden due to high exchange rate
▲The price of eating out in the Seoul area continues to rise due to the influence of labor costs, raw material prices, and the rising exchange rate. According to the Korea Consumer Agency’s price information portal ‘Participation Price’ on December 25, the average price of eight Seoul consumers’ preferred restaurant menus as of last month rose by 3-5% compared to November last year. The price of kimbap rose 5.7% from 3,500 won to 3,700 won, the price of kalguksu rose 4.9% from 9,385 won to 9,846 won, and the price of kimchi stew rose 4.7% from 8,192 won to 8,577 won. The increase was mainly centered on menus that were popular among the common people due to the low price burden. The photo is of a restaurant in downtown Seoul that day. (Reporter Go Iran photoeran@)
The restaurant industry, which suffered more than any other year due to political uncertainty and continued high inflation last year, is suffering again this year due to the cost burden due to high exchange rates and various regulations. Last year, in the 2nd and 3rd quarters of last year, consumption coupons for recovery of people’s livelihoods showed a flash increase in consumption, but consumer sentiment continues to decline and consumer demand appears to be decreasing further due to the recent obesity epidemic.
According to politicians and the restaurant industry on the 1st, the amendment to the Franchise Business Act, which recognizes the collective bargaining rights of franchise owners, passed the plenary session of the National Assembly on December 11 last year and is scheduled to go into effect at the end of this year. The revised bill is aimed at introducing a registration system for franchise business organizations and mandating consultation with franchise business organizations.
The current Franchise Business Act allows franchise business groups to request consultation on transaction terms from the franchise headquarters, and imposes an obligation on the franchise headquarters to faithfully respond to such consultation requests. However, it was pointed out that the right to request consultation was essentially meaningless as there was no basis for sanctioning franchisees that did not respond to consultation. Accordingly, an amendment was prepared.
As the amendment passes the National Assembly, franchisees are expressing concerns. As there are still insufficient provisions for securing representativeness of franchise operators and consultation window regulations, when the amendment is implemented, conflicts within the brand may increase due to the creation of multiple organizations and abuse of the right to request consultation.
An official from the Korea Franchise Association explained, “Experts, including academia, are of the opinion that this amendment is too unilateral in terms of content and only regulates franchise headquarters. We plan to continue consultations with the government on the details of the enforcement ordinance within the first half of this year. We are continuously requesting a plan to allow consultations on the same topic when multiple organizations request consultations.”
As the exchange rate in the 1,400 won range becomes the ‘new normal’, the cost burden is expected to intensify. Due to the rapidly rising exchange rate after the December 3 martial law, the food and restaurant industry raised prices until June, when the 21st presidential election was held. The reason was the increase in operating costs, including cost increases due to high exchange rates and labor costs.
It is analyzed that the fact that price control was loosened due to virtual anarchy also had an impact. After the election of President Lee Jae-myung, news of price increases quieted down due to the strong price stability policy. However, it is predicted that companies that have been suppressing price increases due to the exchange rate, which has remained fixed at the 1,400 won range and the overall costs continuing to rise, are likely to raise prices again this year.
Some are concerned that the demand for eating out may gradually decrease due to the obesity epidemic. Wigobi and Maunjaro, which are currently very popular, are GLP-1 type obesity treatments that reduce weight by slowing down digestion and delivering a feeling of fullness to the brain. By reducing absolute intake, it can affect the size of the food and restaurant market. In fact, in the United States, the decline in consumption of snacks such as soda and snacks last year attracted local media attention. Walmart and Morgan Stanley also released a survey showing that a group of customers taking weight loss drugs slightly reduced their food spending in 2023.
Sluggish domestic demand and delivery app commission issues are also challenges. According to a consumer trend survey released by the Bank of Korea, the Consumer Sentiment Index (CCSI) in December was 109.9, down 2.5 points from the previous month. This is the largest drop since December 2024 (-12.3%p) when martial law was in place. CCSI is an indicator calculated using six indices: current living situation, living situation outlook, household income outlook, consumption expenditure outlook, current economic judgment, and future economic outlook. If it is higher than 100, it means that consumer sentiment is optimistic compared to the long-term average (2003-2024), and if it is below 100, it means that it is pessimistic. It is analyzed that the economic outlook has worsened as concerns related to uncertainty in the external environment increase.
The restaurant industry has called for a commission cap system to solve the problem of delivery app commissions, which are increasing the burden on small business owners, but related regulations are in a sluggish state. However, with the recent personal information leak at Coupang, the possibility that platform regulations will accelerate is attracting attention.
An official from a franchise company sighed, “More than anything, the exchange rate has risen, so there is a lot of pressure to improve the cost structure. Since domestic demand is not picking up, it is difficult for the peel-and-buy strategy to be effective.” He then emphasized, “The delivery app commission issue, which is one of the biggest concerns in the restaurant industry, also saw no progress last year. It must be resolved this year.”
