Ramen and Snack Prices Rise Again... These Companies Stand to Benefit [Weekend Money]

Surging International Grain and Crude Oil Prices
Processed Food Inflation Expected to Exceed 5% in the First Half of Next Year

Analysts say processed food prices are set to surge next year as rising international grain and oil prices increase cost pressures. They expect ramen and confectionery makers, as well as convenience stores, to benefit from their ability to pass higher raw material and logistics costs on to consumers.

Recently, Park Sang-jun, a researcher at Kiwoom Securities, noted, “Cost pressures on processed food companies are mounting. Given the rising prices of wheat and West Texas Intermediate (WTI) crude, the monthly inflation rate for the processed food consumer price index (CPI) is likely to exceed 5% in the first half of next year.”

A consumer is buying ramen at a large supermarket in Seoul. Photo by Yoon Dongju.

Rising Grain and Oil Prices Add to Cost Pressures

“Despite the recent decline in the won-dollar exchange rate, rising international grain and oil prices are intensifying the burden of costs for raw materials, packaging, and logistics at major processed food companies,” Park said.

Since the beginning of the year, corn prices have risen 9%, wheat 33%, soybeans 24%, and raw sugar 39%. Grain prices have continued to climb, with concerns about harvests in the Southern Hemisphere worsening amid a strengthening El Niño.

“The inflation rate for the processed food CPI has also been rising recently, from 1% in July to 1.5% in August and 2.1% in September,” Park said. “Rising oil prices are driving up costs, particularly for packaging and logistics, and price hikes resumed in the second half of the year. If the current uptrend in wheat prices continues, an increase in flour prices early next year will be inevitable.”

He forecast, “If weather-related uncertainty leads to poor harvests in the Southern Hemisphere around the year-end and New Year period, grain prices could rise more sharply again, potentially prompting major processed food companies to raise product prices by more next year.”

Ramen and Snacks Have Pricing Power; Convenience Stores Could Also Benefit as Processed Food Prices Rise

The key variable is each company’s ability to pass on costs. “Given persistent inflation and weak consumer sentiment in some countries, pricing power will be important for each product category,” Park said. “Ramen, snacks, and frozen dessert makers are likely to have stronger pricing power because their products are relatively inexpensive and consumers have few alternatives.”

“If price increases go ahead, companies with low operating margins, such as Nongshim, could see relatively stronger earnings improvement,” he said, citing the potential for earnings to improve as cost ratios decline.

Overseas cigarette makers were also viewed as having strong pricing power, as prices are gradually raised in line with increases in tobacco consumption taxes. By contrast, consumers may push back against relatively expensive products such as beverages, alcoholic drinks sold through food-service channels, and frozen foods, making it necessary to watch how much prices can actually be raised.

As inflation in processed food prices accumulates, convenience stores are expected to be among the retail channels that benefit most. Food accounts for 55% to 60% of convenience store operators’ sales, and their main products generally have strong pricing power.

Park added, “If the inflation rate for the processed food CPI exceeds 5%, convenience store operators could see meaningful sales growth at their existing stores.”

This content was produced with the assistance of AI translation services.