(Exclusive) Maxim coffee price hike to benefit only domestic and foreign shareholders, Dongseo Food

Dividends more than 50 billion won per year to foreign shareholders rather than reinvesting domestic profits

홍혜연 기자 승인 2024.07.04 15:26 의견 0

Dongseo Foods was founded in 1968 as a 50/50 joint venture between Dongseo and General Foods in the United States.
General Foods was later owned by Kraft Foods Holdings, which changed its name to Mondelez Holdings in 2019.

Since its formation, the two companies have formed a technology alliance, marketed Maxim and Maxwell House, and grown their dominance in the instant coffee market. Today, it is the number one company in the domestic mixed coffee market, with more than 80% of the market share.

Thanks to this, Dongseo Food is the core affiliate of the Dongseo Group and the only privately held company that generates more than 1 trillion won in sales annually and distributes more than 100 billion won in profits to its majority shareholders.

Dongseo Food is often referred to as the Samsung of the food industry, and has maintained a stable double-digit operating profit margin despite its high-margin, domestic-driven business structure.
In fact, from 2016 to 2021, the company's sales were in the 1.5 trillion won range and its operating profit margin was 13%.
The problem is that most of the profits go to the majority shareholders and the company raises the price of coffee products too high to maintain high profit margins.

In particular, Dongseo Food is not allowed to expand its own brands overseas under the contract with its US joint venture. In other words, Dongseong Food is only able to make profits by selling its products domestically and distributing most of the profits to its majority shareholders.

According to the industry, Dongseo Food has been distributing more than 50 billion won in profits to its Korean majority shareholder, Dongseo, and its American majority shareholder, Mondelez Holdings, every year since 2018.
<Dividends paid by Dongseo Food to its major shareholder Dongseo

2018 2019 2020 2021 2022
58 billion 58 billion 58 billion 58 billion 58 billion 58 billion 54.5 billion
*Based on Dongseo business reports by year

Dongseo Foods earns around 160 billion won in operating profit each year and uses 110 billion won in profits to pay dividends. The dividends are distributed exactly 50/50 between Dongseo and Mondelez Holdings.
To this end, Dongseo Food raised its ex-factory prices by 7.3% and 9.8% in January and December 2022, respectively.
As a result, the company posted record sales of KRW 1.75 trillion and operating profit of KRW 167.1 billion in 2023.

A food industry insider pointed out, "Rather than reinvesting the profits it earns domestically, Dongseo Food sends a significant portion of its profits overseas in the form of dividends, and it is exploiting consumers to fatten the pockets of its major shareholders at home and abroad."

By Hong Hye-yeon hongyang0427@naver.com

Dongseong Food has increased the ex-factory price of instant coffee and coffee mix products such as Maxim and Kanu by an average of 9.8% from December 15, 2022. It was the second price hike since January of the same year. In this photo, coffee is displayed at a hypermarket in downtown Seoul.

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