“There is nothing left even if sales increase”
By May this year, 2,000 locations will be closed.
2.6 times the number of new licenses
An employee is cleaning the store at a dessert shop in Daehak-ro, Jongno-gu, Seoul on the 24th. As the price of flour and eggs, which are ingredients for dough, skyrocketed, the cafe raised the price of its products by 1,000 won. Reporter Kim Bum-jun
This year, the number of self-employed people running bakery and snack shops has increased sharply. Inflation triggered by the Russian-Ukraine war and abnormal climate caused a surge in food prices, inflicting fatal wounds on the self-employed.
According to the Ministry of the Interior and Safety on the 24th, the number of closures of resturants (food and beverage stores that cannot sell alcohol) in Seoul from January to May of this year was 1963, 2.6 times the number of new licenses (743). This is a bigger number than in 2020 (1.5 times) and 2021 (2.2 times), when the impact of COVID-19 was severe. Resting restaurants include bakeries, gimbap restaurants, pizza shops, and cafes.
The number of closures at bakeries, which is being hit hard by the soaring wheat price, reached 279, the most in the past five years. Startup experts explained, “The price of wheat, sugar, and cooking oil has soared, and businesses that use it as a raw material have been hit directly.”
Kim (38), who runs a waffle shop in Sinchon, Seoul, said, “The ratio of material cost to sales has risen from 40% to 60% on average per month as the price of croffle dough and fruit has risen significantly compared to last year. Sales have increased over the past year, but the cost burden has increased even more.”
Rapidly rising labor costs and loan burden are other factors that weigh on the self-employed. While the hourly minimum wage this year was close to 10,000 won (9,160 won), the labor community presented 10,890 won as the first proposal for next year’s minimum wage. According to the Bank of Korea, the balance of self-employed loans stood at 960.7 trillion won as of the end of the first quarter of this year, up 40.3 percent from the end of 2019 (684.9 trillion won) just before the corona crisis.
“There is nothing without flour, eggs, and sugar… If you sell cake, you will lose money.”
Milk, butter, fruit all-round rising… 5,000 won cake, 3,000 won for ingredients
The self-employed suffer more from ‘inflation shock’ than the general consumer. Since food material companies, convenience stores, and franchise headquarters, etc. do not show up even if they raise food material prices, the range and frequency of increase is larger and more frequent than those for general consumer (B2C) products.
In addition, delivery fees, labor costs, and loan interest rates have also jumped in all directions, adding to the burden. Self-employed people who can’t stand it are going out of business one after another.
○ Soaring prices of wheat and eggs
Bakery owners are the typical ‘victim’ of inflation. This is because the damage is particularly severe compared to other industries as it sells wheat as its main raw material, which has been hit directly by the Russian-Ukraine war and abnormal climate.
On the 24th, the Korea Economic Daily visited a bakery in Sinchon University District, Seoul, and reported how much the cost burden has grown this year. The owner, Mr. Kim, said, “There is nothing that has not gone up in the ingredients,” and said, “If you sell a piece of cake that costs 5,000 won, 3,000 won will come out of it.” Cakes are made by mixing flour with eggs, milk, butter, and sugar. Some fruits are served with whipped cream.
The biggest burden Kim feels is the price of flour. On the Chicago Futures Exchange, the international wheat price is set at $1034 per bushel. This is a 36% increase compared to the beginning of the year.
As 99% of domestic wheat consumption is imported, flour prices cannot be unaffected by this global trend. According to price comparison site Danawa, CJ CheilJedang’s soft white snow flour (20 kg) is sold at 39,980 won, up 85.8% from the end of last year (16,670 won). Croffle dough (32 pieces) rose more than 20% from 13,000 won last year to 16,000 won this year.
Dairy products such as eggs and milk are also on the rise. According to the Livestock Products Quality Assessment Service, the average wholesale price of a special plate last month was 5662 won, up 13.4% from the end of last year. The consumer price of the special egg is 6791 won, which is facing the price a year ago (7535 won) when egg prices soared due to avian influenza (AI). The price of milk (1L) is 2739 won, which is 22.8% higher than in January.
In addition, Samyang’s commercial sugar (15 kg) rose 27.5% from 12,420 won a year ago to 15,830 won, and the price of imported fruits such as bananas and green grapes has to be bought at a higher price than last year. An official from a large mart said, “As global logistics costs have risen sharply due to COVID-19, the prices of imported fruits have also risen.
○ Raise the price or close the business
It is also a bad news for the self-employed that consumer sentiment is showing signs of contraction due to inflation.
Mo Kim, who runs a franchise waffle store near Ewha Womans University, said, “Waffles are inexpensive snacks, so even if the price is raised by 500 won, the number of customers will decrease. The main consumers of college towns are college students with light pockets, and from their point of view, waffles are not something they should consume while bearing the burden of price increases. Kim sighed, “In recent years, dessert specialty stores have been in the spotlight among young customers, so they seem to be the first to be hit by the contraction in consumption.”
Even if they manage to withstand the increase in food material costs, it is not easy to overcome other barriers such as rising loan interest rates and raising the minimum wage. Accordingly, the self-employed are responding by shortening business hours or adjusting the amount of ingredients. Mr. Lee, who runs a burger shop in Seoul, said, “In order to reduce labor costs, we have changed the operation method to use part-time employees except for one manager, and to only deliver for an hour after the dinner hall closes.”
Experts believe that the difficulties of small business owners due to inflation will continue for a considerable period of time. With inflation showing no sign of resolving, it is difficult to expect other costs to fall as well.
Kim Jong-jin, a researcher at the Rural Economic Research Institute, said, “Korea relies on imports for most of the grains used for food manufacturing and formulated feed, so changes in international grain prices sequentially affect prices for domestic processed food, livestock products, and catering industries.” “Global inflation It is urgent to come up with comprehensive measures to minimize this impact on domestic prices,” he said.
Reporter Hankyung/Choi Se-young firstname.lastname@example.org