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Kicker: DEBATE

In Search of a Goldilocks Zone in Skyrocketing Chicken Prices

By Do-Hyuk Kim, Reporter / Su-Young Kim, Cub-reporter

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 Do you know how muck chicken is currently? The price of one chicken, including delivery fee, is 20,000 won to 30,000 won. Prices have risen because of covid-19, high oil prices, and the war in Ukraine. Therefore, the price of chicken, which used to be considered food for the common people, is also soaring. In March of this year, the chairman of a chicken company sparked controversy by saying that 30,000 won was reasonable. After 2 months later, they increased the price of the brand’s basic menu by 2,000 won, which caused more resistance. From the consumer’s point of view, the price of 30,000 won is very expensive; however, there is also an opinion that such a price is inevitable for chicken sales. From now on, let’s talk about high chicken’s price together. Is it too expensive, or inevitable?

It's Too Expensive

 Even though the price is getting higher because of various reasons, I cannot agree with chicken’s price. First, chicken was a food which the common people can eat comfortably. Before 10 years ago, the famous franchise chicken company’s chicken price was 13,000 won to 16,000 won. Most people were enthusiastic about the unique and diverse taste of chicken shops, and chicken was considered a popular dish. Unfortunately, they cannot enjoy chicken anymore like before because of the high price. The franchise chicken companies said the reason of chicken’s high price is an increase in labor costs, frying powder, and building rent. However, the operating profit ratio of chicken franchises is increasing. One of the highest franchise chicken company’s profit ratios is 32%. This is like the profit margin of Apple, an electronics company. If they were really forced to raise prices due to material costs and additional costs, would they be able to make this profit margin? I think they are raising prices for corporate profits, citing the popularity of chicken and the excuse of rising prices. Second, a cheap chicken, priced at 6,990 won, appeared against expensive franchise chicken. This chicken is sold at a large supermarket. According to the menu development manager, he claimed that he does not lose money by purchasing ingredients in bulk to make chicken and frying and packaging meat directly at the mart. Consumers are reacting positively to the cheap and delicious chicken. This case may prove sufficiently that franchisees are in a situation where they can consider the price of food. In an age of inflation, consumers are keen on prices. They are not arguing that food prices should be lowered unconditionally. If we were just watching prices rise, other basic foods such as Tteok-bokki and gimbap, would also soar beyond our imagination. I think that the price of a product should be determined by properly harmonizing the positions of consumers and sellers. Therefore, franchisees should listen to consumers and think about better solutions to higher chicken prices.

It's Inevitable

 Because reasonably priced chicken became so hot between people and controversy, it even came up on television news, and this has to be made clear. The interview from the supermarket supervisor saying that selling this alarmingly cheap chicken still makes them some money despite having impressively low-price range should not be understood as ordinary chicken restaurants have constantly priced theirs excessively high for the pursuit of big earnings. Supermarkets can sell these chickens so cheaply because of these three reasons.

 First is the economy of scale applies to these supermarkets. Big supermarkets attract consumers all the time and tons of people visit these markets on weekends. They could set low profit margin on a single chicken they sell, since they can sell lots of them without having risks of leftover chicken remaining in their facilities becoming cold. Tagging low profit margin on a single product naturally makes the product cheaper, so supermarkets can entice customers to buy just by deploying this simple strategy. Small business owners, on the other hand, can’t match this remarkably easy tactics that big supermarkets easily apply. They have to pay more for purchasing each ingredient required for baking a chicken and should pay a commission to their head office if they are under specific chicken brands. Settling out alone without the help of a major chicken brand could be possible, but it will not be easy and the owner should manage with even bigger risk of failure due to low awareness of the store. Big supermarkets do not need any aggressive promotions to tell customers about their new chicken’s presence.

 The production cost issue continues. Supermarkets already have cooking utensils and space to bake a chicken that small business owners should buy brand new. Supermarkets sell other groceries, so launching a new chicken menu targeting sensible customers is as easy as just adding a new menu that is already related to the one that already exists in a Michelin-awarded restaurant. This reveals the second problem, which is the delivery service platforms. Big supermarkets are already big enough to request customers to come and fetch their chickens in person, but local chicken restaurants are not. Delivery service platforms extorting money from small businesses was already pointed out as a social problem, but most customers are already tamed by the convenience of delivery service apps made by service providers.

 Delivery service providers are currently abusing their monopoly status to local food stores, including chicken restaurants. Not only do the head offices of popular chicken brands steal lunch money from those small business owners, but delivery service providers too. They ask to pay store owners commissions in the name of attracting customers and connecting delivery men to the store, which is pretty nominal and falsely charged. In the olden days when such thing like delivery service providers did not exist, customers called directly to the store for their requests. No one complained about this organized, Korea-specific system and chicken restaurant owners were free from these expensive commissions. Happiness was short lived, with the introduction of the smartphone and delivery service providers. These service providers are sitting between chicken restaurants and customers, collecting an unfair toll – which big supermarkets never have to consider.

 The final reason is that the liberation from failure only applies to these big supermarkets. Even if these cheap chickens become a commercial flop, supermarkets are not afraid of such failure. It may not be happy to lose money, but they still can ignore the possibility of failing, since other products they sell got them covered. To local chicken restaurant owners, it is likely that chicken is the only measure of earning money and bad sales of chicken leads them directly into a complete shutdown of the store. They could not dare to price these chickens so cheaply while enduring losses on every chicken they sell. Big supermarkets can also give up on earning money with this cheap chicken but focus on attracting customers to their stores. Big crowds gather every day in these supermarkets to buy this red-hot chicken, and this huge number of people each have a high possibility of buying another product from the supermarket. If a customer visited the supermarket to buy this chicken and suddenly remembered that coffee is about to run out at his home, that is a success for these supermarkets. Congratulations for big supermarkets even making money with that chicken, but to be honest, they would not care about money lost by producing that cheap chicken even if it failed. They could feel free and be highly interested in developing a new record-breaking in terms of price in differently areas, such as ‘half-priced paper towel.’ Small chicken restaurants in your neighborhood cannot even dream of this whole story.

 These issues eventually all add up. Problems imposed to local business owners instigate the price of chicken you can get from a chicken restaurant within two kilometers away to be expensive. Twenty thousand won for a chicken is inevitable for small chicken restaurant owners to maintain their stores, not for their wealth. Recent inflation and pricier wheat, chicken and cooking oil is new in terms of this issue, and this also is hurting local chicken restaurants.

 Consumers are facing a severe recession that they have never experienced since 2010, when the subprime mortgage crisis struck the entire global society. All of the consumers, including us, are in search of cheaper products that can replace their previous purchases. It is a difficult time to live an ordinary life while withstanding this crisis and the epidemic combined. When business owners return to their homes, they transform into consumers. When each of these consumers go to work, they become a merchant in either a tangible item or an intangible form. We are both consumers and providers, so effort to impose pricing that everyone can agree on is required, including chickens. One thing should be clear: the goldilocks zone of the chicken price is where both consumers and chicken restaurant owners can happily make an agreement.