Half-price chicken at supermarkets, “It still remains”: Weekly Donga

On August 23rd, people are lining up to buy ‘Dangdang Chicken’ at Homeplus Hapjeong Branch in Mapo-gu, Seoul. [이슬아 기자]

“My grandson from elementary school asked me to buy ‘Dangdang Chicken,’ so I came to buy it. Last time, I was not able to enter on a first-come-first-served basis, so I came second.” (Mo (70) Yoon, a resident of Mapo-gu, Seoul)

“Because we do not only cook and sell Dangdang Chicken, we are inevitably limiting the number of sales because there is a shortage of workers. As soon as they come out, they are all sold out, so there is never any leftover chicken.” (Homeplus Hapjeong Salesperson)

At around 10:30 am on the 23rd of August, there was a long line of citizens who came to buy ‘Dangdang Chicken’, which costs 6,990 won per chicken, at the cooking food corner of the Homeplus Hapjeong branch in Mapo-gu, Seoul. Homeplus has been selling Dang Dang Chicken at 6,990 won per chicken since June 30. There are only 15 chickens cooked at 11 a.m. that customers can buy. One citizen said that he had been waiting in line for an hour from 10:00, the opening time of the mart, to fit within 15 people.

As chicken prices from famous franchises rise all at once at high prices, cheap supermarket chicken like Dang Dang Chicken is gaining popularity recently. Starting with Homeplus, Lotte Mart temporarily sold ‘Handong Chicken’ for 15,800 won at 8,800 won, and E-Mart launched ‘No. 9 Fried Chicken’ at 5,980 won. Consumers are increasingly curious regarding what makes large supermarkets sell chicken at half to one-third the price of franchises, and whether there is no bubble in franchised chicken.

‘Dangdang Chicken’, which Homeplus has been selling for 6,990 won per head since June 30. It consists of fried chicken and french fries. [이슬아 기자]

Supermarket “I don’t sell chicken while making a loss”

There are quite a few views regarding the ‘cost-effective chicken’ of the three large supermarkets as a bait product. Even if the chicken is sold at a loss, the consumers who visit the mart are aiming for the profits they get when they purchase other products. In response, the hypermarket side said, “It is not selling at a loss.” Although it is not possible to reveal the specific price structure, hypermarkets have a lot of room for cost savings in the manufacturing process, unlike franchises.

The simple distribution structure is the main factor that allows large marts to sell chicken at low prices. A Homeplus official said, “The mart receives raw chicken, a key ingredient in chicken, and cooks it right there. As there is no process of redistributing raw materials to franchisees like franchisors, we can reduce distribution costs.” In the chicken franchise industry, the head office purchases raw chicken and sells it back to the franchisees. Distribution and logistics costs incurred at this time are included in the price of franchise chicken. On the other hand, hypermarkets do not have such an intermediate process, so chicken prices are cheap.

Supermarkets do not need to have separate franchisees. The mart already has a prepared food section, so there is no additional cost for equipment and manpower. A Homeplus official explained, “There is no need for a separate store, so rent is not included in the chicken price. . The fact that there is no delivery cost and the disposal rate is low is one of the cost reduction factors. Mart Chicken is sold only on site, so there is no additional delivery fee. Because it is in the form of ‘peel-damae’, there are very few cases where the product is discarded.

No additional cost due to simple distribution structure

Chickens from famous franchises cost more than 20,000 won per chicken. Raw chicken, the key ingredient, was delivered at 3,343 won last year, up 500 to 600 won from the previous year, but the franchise headquarters mostly ship it through affiliated broiler companies such as ‘Harim’, so chickens are supplied at a lower price. Still, the price of franchise chicken has gone beyond the consumer’s ‘psychological margin’ and a bubble is being debated. In response, the chicken franchise industry explained, “The price of sub-materials has mostly risen due to the war in Ukraine.

If you compare the actual hypermarket and franchise chicken, there is a difference in the size of the raw chicken and the ingredients (refer to the graph). In the case of supermarket chicken, No. 8 raw chicken (regarding 3,000 to 4,000 won) is mainly used. If you look at other price components, it tends to be simple with subsidiary materials such as oil and wrapping paper (regarding 1,000 to 2,000 won) and VAT (regarding 700 won). There are no rent, labor, or delivery charges, and seasonings, chicken radish, and drinks are not included. On the other hand, franchisees usually use salted and cut raw chicken No. 10 (regarding 5,000-6,000 won), and the price of the chicken includes the price of oil, wrapping paper, seasoning, chicken radish, and beverages (regarding 3,000-4,000 won). In addition, there are many factors that affect the price, such as value-added tax (regarding 1800-2000 won), rent and labor costs (regarding 2,000 won), delivery platform fee (regarding 3,000 won), and delivery fee borne by the store owner (regarding 3,000 won).

The industry asserts that “the reason why there is a difference in the price of raw chicken or supplementary ingredients is because franchisees have the know-how of their own.” An official from BHC said, “(Chicken sold by the company) has many differences from supermarket chickens such as the size of the raw chicken, the method of salting, and the type of oil used. . “Just as sushi sold at large supermarkets does not compare to sushi sold at a Japanese restaurant, it is unreasonable to put supermarket chicken and franchise chicken on the same line.”

Regarding the point that the chicken franchise headquarters is taking profit from franchisees, a BHC official explained, “It is not true.” Last year’s operating profit margins of BHC and BBQ, the two leading chicken franchises in Korea, were 32.2% and 17.8%, respectively, higher than the restaurant industry average of 8%. In this regard, a BHC official said, “The reason BHC’s operating profit rate is particularly high is because, unlike other chicken franchises, there is almost no sales and management expenses.” he explained.

_{* If you search and follow ‘Magazine Donga’ and ‘Two Bengers’ on YouTube and portal, respectively, you can find various investment information such as videos as well as articles.}

Weekly Donga No. 1354 (p28~30)