Is Food Industry Growing Too Fast?

Food distribution companies are competing to expand their “territory” by acquiring rivals and diversifying their food offerings.

But some observers say their excessive expansion may undercut their profitability. Nevertheless, the competition is likely to accelerate due to high expectations for economic recovery this year.

Dongwon Expands—

Dongwon Group, which specializes in processed food such as canned tuna, porridge, and seaweed, has stepped up its efforts to secure a foothold in the dairy processed food market. The group earned preferential negotiation rights to take over Haitai Dairy through Dongwon Enterprises, its holding company.

Dongwon moved into the snacks market with “Shunape,” a product made out of a combination of crackers with tuna. It also entered the ginseng processing business by acquiring the right to manage and operate the International Ginseng Distribution Center in Chungnam.

CJ Mall—

Recently, CJ Mall acquired Samho F&G and has plans to participate in the public sale bidding of Daerim Corporation late this month.

It also acquired the right to manage the Cheongdo resting place located in the middle of newly opened highway between Daegu and Busan (82 km) through CJ Food System, which is in charge of the food business. It is the first time a large company has entered the resting place business.

CJ Mall invested 20 billion won to create “Ample Online” in an attempt to enter the E-market business and gain a foothold in the online shopping market.

Lotte Confectionery is entering the snack market together with the U.S. snack company, Frito-Lay, bringing it into direct competition with Nongshim, the top snack maker in Korea.

Some companies are aggressively moving into areas that are not directly related to their businesses.

Lotte Shopping announced plans to move into the cosmetics distribution market by establishing an Yvesrocher store selling French cosmetics in Lotte Mart World on February 17.

Hanhwa Stores, which manages the Galleria Department Store, set up a coffee house called “Beans and Berries” in the 63 City Building.

Reckless Competition?—

As the competition heats up, some are concerned that reckless expansion may lead to insolvent operations.

CJ Mall’s entry into the E-market on February 20 raised red flags with major securities firms such as Samsung, Hanhwa, and Mirae Asset. “Profitability is expected to decrease,” observers said, and all three lowered their CJ stock price targets. CJ stock fell about 11 percent on February 21 and 22.

Jae-Seong Hwang Seong-Yub Ra jsonhng@donga.com cpu@donga.com