ANALYSIS Orion snacks sweep China, Russia and Vietnam
By Kim Jae-heun
The outbreak of COVID-19 has brought about an unexpected increase in sales for local food companies ― strict social distancing measures have forced people to spend more time at home and they are consuming more food while they are there.
Orion is one of the biggest beneficiaries. It is the largest food firm in terms of sales in Korea followed by Lotte Confectionery and Crown. Lotte took the No.1 spot in 2019, but thanks to the growing popularity of snack items overseas, Orion recaptured the top position in 2020.
Winning against pandemic odds
CJ CheilJedang and Nongshim likely come to mind first when people are asked which local food firm has the highest oversea sales. But Orion's sales last year surpassed those of these established giants, reaching 1.5 trillion won (1.34 billion won), or 66 percent of its 2.2 trillion won (1.97 billion won) total.
China was at the center of Orion's success ― sales there soared 12 percent to a record 1.09 trillion won, passing the 1 trillion mark for the first time since 2016. This was just prior to the Chinese government taking economic retaliation against Korean firms after Cheong Wa Dae agreed to the deployment of the U.S. THAAD anti-ballistic missile defense system here.
Orion's popular Choco Pie and O!Potato Chip snacks saw sales of over 200 billion won there to spearhead the performance.
Now its new bestseller is Turtle Chips, “kkobukchip” in Korean, which are a type of corn chips.
The snack item was introduced here last September and about 10,000 packs are sold every day, leading Orion to try this mega-hit in the United States and China.
In the first quarter of this year, Orion's overseas sales in China increased 14.8 percent, compared to the last three months of 2020, to 301.9 billion won. The outlook for the second quarter remains bright as Turtle Chips are now well-established in the Chinese market.
Orion also did well in Vietnam and Russia where Choco Pie is a bestseller. Last year, Orion's year-on-year sales in Vietnam and Russia rose 15.7 percent and 15.2 percent, respectively, thanks to the popular snack. These mark the highest sales in those regions since the firm entered them in the early 90s. In Vietnam, Poca Chip and Swing Chip are also sell well.
This placed Orion 14th in the world's top 100 confectionery firms rankings report published in Candy Industry Magazine last year. Candy Industry Magazine is a business-to-business publication that covers the global confectionery industry from manufacturing to retail. Orion is the only Korean firm to maintain its position in the global top 15 confectionery firms according to the magazine.
“During the hard times of COVID-19, the company is managing to maintain sales growth locally market as well as in China, Vietnam and Russia,” an Orion official said. “We will continue to develop new quality products and compete with global confectionery firms.”
New growth engine
Riding on the popularity of its snack items, Orion wants to continue its success overseas with its “functional foods” brand Dr. You and meal replacement brand Market O Nature.
In the local market, sales coming from the two brands skyrocketed by 66 percent in the first quarter of the year amid a pandemic-induced lifestyle shift.
Orion is also pushing its beverage and bio business ― it is already aggressively marketing Jeju Volcanic Water in China and Vietnam.
China's beverage market is growing at a fast rate due to people's increasing interest in health and growing purchasing power. And Orion is targeting young customers based on its mineral water sales both on and offline at JD.com and local convenience stores there.
The confectionery firm has started selling Jeju Volcanic water in major cities across Vietnam, seeking to ride on the popularity of K-pop and K-drama.
“Orion has started selling Jeju Volcanic Water, which is our new growth engine, in China and Vietnam. It comes from the excellent clean water resource of Jeju Island and we will establish its reputation as a premium mineral water brand there,” an Orion official said.
IBK Securities predicts Orion's 2021 sales to record 2.41 trillion won, up 8.2 percent compared to last year.
“Production cost increases will be inevitable for Orion as global raw material prices continue to rise. But, it will continue to improve its profitability due to the reduction of SG&A (selling, general and administrative) expenses,” IBK researcher Kim Tae-hyun said.
Overseas business risks
Running a business abroad entails risks from unexpected factors. Orion opened its 10th production line in New Delhi in February, but the COVID-19 pandemic has devastated the country recently.
India is the second largest market for Orion after China, with 17 trillion won in sales. Orion just started its business there so the damage from the pandemic may be minimal, but if resurgence of the coronavirus continues, it will be inevitable for Orion to face a decrease in sales, and a delay in production estimated to cost 60 billion won.