A restaurant street in Myeong-dong, Jung-gu, Seoul, sits quiet. News1
Restaurants in South Korea are keeping less of what they earn, with food and labor costs exceeding 70% of sales for the first time last year. Costs are climbing faster than revenue, squeezing already thin margins across the industry.
Food and labor costs at general restaurants rose to 71.6% of sales in 2024 from 58.8% in 2015, a 12.8 percentage point increase over nine years, according to an annual survey of restaurant operations published by the Ministry of Agriculture, Food and Rural Affairs and the Korea Rural Economic Institute (KREI) since 2016. The report, released on the 14th, marked the first time the combined share topped 70% since the survey began. The 2024 figures are the latest available.
The share climbed steadily from 63.6% in 2019, when the COVID-19 pandemic began, to 66.1% in 2020, 66.7% in 2021, 66.8% in 2022 and 69.8% in 2023, before reaching 71.6% last year. Industry officials consider a so-called prime cost — food and labor combined — of around 60% of sales manageable. Above 65%, operators struggle to cover other expenses such as rent, utilities, card processing fees and marketing.
Food Costs Up 1.8 Times, Labor Costs 2.7 Times, Outpacing Sales
Average food costs at general restaurants rose about 1.8 times to 103.77 million won from 58.73 million won in 2015. Food costs as a share of sales topped 40% for the first time in 2023 and reached a record 40.7% last year.
Average labor costs rose 2.7 times over the same period to 78.98 million won from 28.73 million won. Average sales, by contrast, grew only about 1.7 times, to 255.26 million won from 148.83 million won. With food and labor costs rising faster than revenue, profitability has continued to deteriorate.
Operating margins fell to 11.6% in 2022 from 25.4% in 2015. The figure dropped below 10% in 2023 at 8.9%, then slipped further to 8.7% last year — roughly one-third the 2015 level in nine years.
When food and labor costs exceed 70% of sales, only about 30% remains. Out of that, operators must also pay rent, utilities, card fees and marketing costs, as well as taxes and financing charges. That is why the industry sees profitability as bound to fall sharply.
Operators Say Fierce Competition Blocks Price Increases
Rising ingredient prices and wages are cited as the main drivers of the cost burden. Food prices jumped amid climate shocks and wars, while the hourly minimum wage passed 10,000 won last year, adding to labor costs. Yet intensifying competition among restaurants has left operators unable to pass those costs on to menu prices, analysts said. “Food and labor costs above 70% means owners are left with virtually no real average profit,” said Kim Seung-il, who heads the cooperation team at the Korea Foodservice Industry Association. “You could say many self-employed business owners are effectively operating at a loss.”
Excessive competition was also flagged as weighing on profitability. “The problem is a structure in which sales get divided up, compounded by excessive competition as everyone chases the latest trends and popular menu items,” Kim said. “Entry rules are also needed to reduce excessive competition in the restaurant business, such as tougher training requirements for those opening a business.”
Lee Hee-chan, an emeritus professor at Sejong University, said measures to curb the concentration of workers in self-employment should come alongside improvements to food distribution networks. “To address the difficulties facing self-employed business owners, the priority should be discussions on measures to prevent the rush into self-employment, along with improving food distribution networks and adjusting labor cost standards such as weekly holiday allowances to fit the realities of the restaurant business,” Lee said.
Dining and Cooking