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South Korea food & drink report

South Korea has been hit particularly hard by worsening domestic and global conditions and as such BMI has revised its 2009 real GDP forecast downwards ( see Macroeconomic Outlook). This may go some way to explaining the limited amount of merger and acquisition (M&A) activity this quarter. However, despite concerns over the economy and weakening consumer confidence, a number of retailers have confirmed expansion plans. One company hoping to take advantage of the current economic situation is South Korea's largest manufacturer of instant noodles, Nong Shim Co. The company announced this quarter that it aims to increase sales for 2009 by 20% to US$1.28bn. Nong Shim Co believes that as a result of the economic problems that consumers are facing they will turn their attentions to cheaper food alternatives such as noodles, causing a surge in sales. Moving to the drinks industry, Lotte Chilsung announced this quarter that it is to acquire the liquor business of Doosan for somewhere in the region of US$381-457mn. This acquisition will enable Lotte to further diversity into the profitable and still high-growth alcoholic drinks sector, a sector that BMI forecasts will be worth US$1.6bn by 2013. Meanwhile, retailers Samsung Tesco and Shinsegae have announced expansion plans this quarter. Following reports last quarter of a decline in sales, Samsung Tesco announced plans in January to open at least six more hypermarkets during 2009. Whilst deteriorating economic conditions will affect consumer-spending levels, South Korea's mass grocery retail (MGR) sector remains an attractive prospect. Sales are expected to increase by 27.9% to reach US$73.3bn in 2013, and in opening further stores Tesco is trying to ensure it remains well positioned to handle consumer demand as it recuperates. South Korea's Shinsegae has announced plans to continue to expand in China, involving an increase in the number of discount stores in the country from 19 to 30 by the end of 2009 and the opening of a further 10 supermarkets within the year. Although GDP growth in China is expected to slow to 5.6% in 2009, Vice Chairman of Shinsegae Chung Yong-jin has said the Chinese market is still attractive to the company. Although this quarter has seen some activity in terms of company expansions, the environment for South Korea's food, drink and retail industries is likely to remain tough throughout 2009 as global financial turmoil continues to take its toll on the region.

by S. C.
07 april 2010, World News > Asia