On the way to work, on the way home. We unpack the issues drawing attention online and offline. Beyond the facts, we look at what they mean economically and socially. Every issue in the world, unpacked!
"Plenty of restaurants are telling us their profits fell 20% to 30% from last year."
High prices and weak consumer spending are deepening the gloom in South Korea's food service industry. Ingredient and labor costs have climbed so fast that even restaurants holding revenue steady are keeping less of it. Entertainer Jung Jun-ha, who says his restaurant brings in hundreds of millions of won a month, has acknowledged that operating costs leave him with little.
Food and Labor Costs Alone Take 71.6% of Revenue
Food and labor costs accounted for 71.6% of revenue at ordinary restaurants in South Korea in 2024, according to a report on restaurant business conditions by the Korea Foodservice Industry Association, the Ministry of Agriculture, Food and Rural Affairs and the Korea Rural Economic Institute released on the 23rd. It was the first time the share topped 70% since the survey began.
The ratio stood at 58.8% in 2015 before rising steadily to 63.6% in 2019, 66.8% in 2022 and 69.8% in 2023.
Costs rose far faster than revenue. Average ingredient costs at ordinary restaurants climbed about 1.8-fold, to 103.77 million won from 58.73 million won in 2015. Labor costs rose 2.7-fold over the same period, to 78.98 million won from 28.73 million won. Average revenue, by contrast, grew only 1.7-fold, to 255.26 million won from 148.83 million won.
Profitability has deteriorated quickly as well. The average operating margin at ordinary restaurants fell to 8.7% in 2024 from 8.9% in 2023 and 11.6% in 2022. That is about a third of the 25.4% recorded in 2015.
Kim Seung-il, who heads the mutual cooperation team at the Korea Foodservice Industry Association, told Newsis on the 23rd that the industry's average operating margin this year would reach "the 7% range at best," adding that many operators said the Chuseok holiday brought no boost in business.
"A considerable number of our members say operating profit is down 20% to 30% from last year," he said. "Even with the same revenue, inflation cuts into profit, and that is eroding their ability to hold on."
The industry regards combined ingredient and labor costs of around 60% of revenue as the threshold for stable operations. Once the figure passes 70%, what is left must cover rent, utilities and card processing fees, making profit hard to come by.
Jung Jun-ha on Fixed Costs: 400 Million Won in Monthly Revenue, Little Left Over
As the industry struggles broadly, the business record and difficulties of entertainer Jung Jun-ha have drawn attention.
Jung said in 2024 on the YouTube channel "Face Genius Cha Eun-soo" that his raw fish restaurant in Gangnam took in about 400 million won a month. He said the restaurant brought in roughly 10 million won on a weekday and 15 million to 20 million won on weekends.
High revenue did not translate into high profit. Jung said monthly rent alone came to 32 million won and labor costs to about 45 million won, and that rising raw material prices and the costs of running the business with partners left him with little.
Even so, Jung has spent nearly 30 years in the restaurant business, running a string of ventures. On "Donjjul Hearing," a web variety show on Kiwoom Securities' YouTube channel "Channel KK" released recently, he said an indoor street-food bar he opened during the 1997 foreign exchange crisis recorded monthly revenue of 60 million won.
He opened the place after raising a 20 million won deposit, and earned that revenue at a time when a bottle of soju cost 1,500 to 2,000 won.
Starting with that street-food bar, he moved into sushi restaurants, wine bars and raw fish restaurants. He said none of his ventures failed apart from the COVID-19 period.
On KBS 2TV's "The Boss's Ears Are Donkey Ears" in March last year, he discouraged Lee Soon-sil, a North Korean defector chef weighing a venture in Gangnam, telling her the restaurant business was difficult these days and that this was a time to talk people out of it.
He opened another venture nonetheless. On the 20th of last month he launched the first South Korean location of a Seattle-based yogurt brand in Godeok-dong, Gangdong District, Seoul. Jung said the yogurt shop would be his last new restaurant brand.
Small Business Owners Call for Targeted Support
Some operators post high revenue as Jung does, but many small business owners are squeezed between rising costs and weakening consumption.
Calls are growing within the industry for targeted support to stem the decline in profitability.
A restaurant operator surnamed A in Seoul's Dongdaemun District said refunding 10,000 to 20,000 won to customers who eat in could revive dine-in business. "Dine-in operating profit is about 10% higher than delivery, so restaurants on the brink of closing could catch their breath," the operator said.
Kim, the association official, also pointed to the problem of consumption vouchers being concentrated in particular sectors, proposing that eligible spending be limited to purchases such as agricultural, livestock and fishery products.
He questioned how effective support channeled through delivery apps would be. By his account, only 220,000 of roughly 780,000 restaurants nationwide, or 28%, have ever used a delivery app.
With the Ministry of SMEs and Startups weighing a 120 billion won budget allocation for a public-private delivery app, he urged measures that would deliver benefits to a wider range of small business owners.
Lee Hee-chan, an emeritus professor at Sejong University, told Yonhap News Agency that policies to curb the overconcentration of small businesses, improvements to food ingredient distribution networks and discussion of labor cost standards suited to the realities of the restaurant industry were all needed.
