Behind the scenes of astronomical owner dividends such as Dongseo Foods and Ediya
Did the owner’s family become full in the end with the excuse of cost increase?
Experts “Relevant authorities should take a closer look at shifting responsibility to consumers”
The government recently launched a fact-finding survey on the liquor industry. Not only the Ministry of Strategy and Finance, the responsible ministry, but also the National Tax Service and the Fair Trade Commission have rolled their arms. “If necessary, we will look into the profit scale and competitive landscape of the liquor industry,” he bluffed. The superficial reason is to prevent the era of ‘soju price of 6,000 won’. The National Tax Service recently invited liquor industry executives to a closed-door meeting and asked them to refrain from raising prices.
The reaction of the liquor industry is different from that of the government. “There has been no announcement of a price increase, and there is no plan to raise it, but the government is making a fuss,” he denounces. An official in the liquor industry, who requested anonymity, said, “The price of soju sold in the market is formed by adding taxes and distribution costs as well as the manufacturer’s factory price.” I am concerned,” he said.
Concerns over Domino’s price hike for everything from ramen to coffee
The prevailing view is that the government’s fact-finding survey is a kind of ‘warning’ to the food and beverage industry, which has recently been raising prices. The government has asked for restraints on food and beverage price hikes on several occasions. A number of meetings were also held. Nevertheless, food and beverage prices have risen in recent years. Most of the items that are directly related to the price of shopping carts of ordinary people, such as coffee, ramen, hamburgers, snacks, ice cream, bread, and drinks, have risen.
In particular, in the case of processed food, even the unwritten rule in the industry of ‘posting once a year’ has been broken. Prices are raised at least once every 3 months and at most 6 months. Some companies even raised prices three times in a year or so. It is natural for the government to be blamed for the rise in shopping cart prices. Experts point out that the government recently ‘declared war’ once morest the liquor industry, but the actual target might be the food and beverage industry. Is that why? It is said that some companies that have been ‘watching the government’ have recently postponed or even withdrew their price increase plans.
The reasons why companies raise the price of their products are largely the same. They consistently say that a price increase is inevitable as costs rise in the followingmath of global inflation, as well as labor, logistics and fuel costs. However, the situation for some companies is different. There are not a few cases in which the burden of inflation is passed on to consumers, saying, “The company’s circumstances are difficult,” and the pockets of the owner family are filled through high dividends.
Dongseo Food is a representative example. The company currently controls more than 80% of the domestic coffee mix market. It is a solid company that records around 1.5 trillion won in sales and 200 billion won in operating profit every year. This profit is passed on to shareholders in the form of an annual dividend. The dividend in 2021 is 116 billion won. It accounts for 71% of net profit (163.1 billion won). Currently, Dongsuh Foods’ shareholders are Dongseo Co., Ltd. and Mondelez Holdings Singapore, each holding a 50% stake. It is said that the two companies shared a dividend of 80 billion won.
The problem is that Dongseo Foods has been raising coffee prices one following another. Dongseo Food raised product prices twice in January and December last year. The increase rates average 7.3% and 9.8%, respectively. Thanks to this, the price of Maxim Mocha Gold Coffee Mix (12g), called ‘national coffee’, rose 17.8% in 11 months from 11,310 won to 13,330 won. Kanu Americano (90g) is also sold at 17,260 won, up 2,610 won (17.8%). This is why there is a controversy over the ‘exflow of national wealth’ over the price increase of Dongseo Foods. An official in the food industry said, “In the case of Dongseo Food, rather than reinvesting the money the company earns in Korea, a large portion of it is exported abroad in the form of dividends.” It is doubtful,” he pointed out.
Was it an inevitable price increase?
The major shareholder of Dongseo Foods is Dongseo Co., Ltd. Dongseo Co., Ltd., which filled its barn with the money received from Dongseo Foods, is also famous for paying a high dividend every year. The dividend payout in 2021 is 69.1 billion won. It accounts for 61% of net profit (113.4 billion won) and 180% of operating profit (38.3 billion won). The owner’s family, including former Dongseo Group chairman Kim Sang-heon and former Dongseo Foods chairman Kim Seok-soo, and related persons currently own a 66.8% stake in the company. Considering this, the owner family and others received more than 46 billion won in dividends last year alone. Although the price was raised twice last year, the dividend increased to 72 billion won. The dividend payout ratio is also increasing year by year from 50.4% in 2019 to 59.0% in 2020 and 60.9% in 2021. This is why there are criticisms that the price increase of Dongseo Foods is intended to swell the pockets of the owner’s family.
Dongseo or Dongseo Food Co., Ltd. protested, saying, “It was an inevitable price increase.” A group official said, “As the price of coffee beans rose due to global inflation, the company’s finances deteriorated compared to the past, so product price hikes were inevitable.” Regarding the controversy over the outflow of national wealth, the company said, “Isn’t a shareholder return policy that pays out a lot of dividends a good thing?” It is natural to pay dividends to shareholders who invested in consideration of risk,” he emphasized.
The coffee franchise Ediya also recently adjusted its prices one following another. Ediya announced last October that it would raise the prices of its major products. It was the position that price adjustment was inevitable as overall costs rose in the followingmath of labor costs, logistics costs, and raw and subsidiary material price hikes. Due to opposition from the store owners, the plan was put on hold following two days. Ediya conducted a survey of store owners and decided on a price increase in December. The prices of 57 beverages, excluding Americano and espresso, were raised by 200 to 700 won.
Ediya also pays a large amount of dividend every year. As of the end of 2021, Ediya’s sales were 243.4 billion won, and its operating profit and net profit were 19 billion won and 16 billion won, respectively. This is an increase of 8.7%, 34.8%, and 45.5%, respectively, compared to the previous year. That year, Ediya paid 4.5 billion won in dividends, including interim dividends (2 billion won) and annual dividends (2.5 billion won). This is a 60.7% increase from the previous year (2.8 billion won). This means that Chairman Moon Chang-ki (67%) and his two children Seung-hwan (6%) and Ji-hwan (2%) received 3.4 billion won in dividends that year alone. In the last 10 years, the cash dividends these rich people have taken are close to 20 billion won. Nonetheless, Ediya is talking behind the scenes in that it raised the price last year.
“S in ESG management is the social role of a company”
Ediya’s side is currently reluctant to comment on the high dividend controversy. Despite the reporter’s request for clarification, he was consistent with ‘silent reply’. What is noteworthy is that the transition to high dividend was immediately following the stake was passed on to the second generation of Chairman Moon Chang-ki. An official familiar with the company’s circumstances said, “Chairman Moon gave 6% and 2% stakes to his eldest son, Seung-hwan, and his second son, Ji-hwan, respectively, in 2012 and 2016. Around this time, the amount of dividends increased more than four times from 500 million won to 2.2 billion won,” he said.
Experts are also expressing concerns regarding Domino’s price hike in the food and beverage industry. Prices may rise as costs rise. In this case, it is pointed out that dividends to the owner’s family should be refrained from the perspective of responsible management. Lee Eun-hee, a professor of consumer studies at Inha University, pointed out, “Companies need to keep in mind that in ESG management, which is popular these days, S (Social) stands for a company’s social role.” The social role here is not the owner appearing in the media to deliver briquettes or make kimchi. In difficult times, it means that companies can be loved by consumers only when they take an exemplary and preemptive role.
In that sense, Professor Lee says that the recent dominoes of price increases by food and beverage companies were not appropriate at the right time. He said, “It is not only a matter of passing the burden of cost increase to consumers, not only for businesses but also for the self-employed,” he said. Emphasized.
Nongshim, Ottogi, and Samyang Food owners’ salaries are also ‘reduced’
The same goes for the ramen industry, which raised prices due to rising costs and sluggish performance. It is said that Nongshim, Ottogi, Paldo, and Samyang Foods have recently raised their prices or are planning to raise them. The reason for the price hike was an increase in raw material prices due to inflation and an increase in import costs due to the high exchange rate.
In fact, ramen companies showed somewhat sluggish performance in 2021. Nongshim, which ranked first in market share, recorded sales of 2.663 trillion won and operating profit of 106.1 billion won. Sales increased by 0.9% from a year ago, but operating profit decreased by 33.8%. Net profit for the year was KRW 99.6 billion, down 33.2% from the previous year. In the first half of this year, Nongshim’s domestic operating profit also posted a loss for the first time since 1998.
After going through the third quarter, Nongshim’s earnings showed signs of recovery in the fourth quarter. Sales and operating profit increased by 16.4% and 47.3%, respectively. Thanks to this, sales and operating profit estimates for this year were KRW 3,129.1 billion and KRW 112.2 billion, up 17.5% and 5.7%, respectively, from the previous year. Hi Investment & Securities predicted in a recent report, “The burden of raw materials considering the exchange rate will have an impact until the first quarter of this year, but the sensitivity will be lowered.”
Is that why? Executive salaries have also increased significantly. Chairman Shin Dong-won received an annual salary of 1.39 billion won in 2021. This is an increase of 32% from 1,059.75 million won in 2020. Nongshim explained to the media that it was “a salary increase due to a change in position.” However, it is pointed out that the annual salary in the first half of this year is 737 million won, which is a 21% increase compared to the first half of last year (576.45 million won), when he was paid as the CEO.
Samyang Food Vice Chairman Kim Jeong-soo, who was promoted in 2021, has also significantly increased his salary. In April 2018, Vice Chairman Kim was indicted by the prosecution along with his husband, former Chairman Jeon In-jang, on charges of embezzlement. He was accused of embezzling around 5 billion won by arranging packaging boxes supplied by affiliates to Samyang Foods as if they were delivered to a paper company. Vice-Chairman Kim and his wife, who were handed over to trial, were sentenced to three years in prison, two years in prison, and three years of probation by the Supreme Court in January 2020, respectively, and withdrew from management.
However, in October of that year, Vice Chairman Kim returned to management as general president, and was promoted to vice chairman once more in regarding a year. In the process, Vice Chairman Kim’s annual salary more than doubled from 440.7 million won in 2020 to 997.97 million won in 2021. As of the third quarter of last year, the annual salary increased significantly once more to 1.3753 billion won. This is the result of reflecting the half-year bonus of 550 million won. By the end of the year, salaries are expected to increase further. In addition, the salary of Ottogi Chairman Ham Yeong-joon, who raised the price twice in the last year and two months, also increased slightly. As a result, the eyes of consumers are also stinging, so the future trend is noteworthy.
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