South Korean restaurant operators are facing structural pressure in which they take home less and less money even as sales climb. The share of revenue consumed by the so-called “prime cost” — food ingredients plus labor — surpassed 70% for the first time last year. That is far above the roughly 60% level the industry generally regards as a stable operating benchmark.
According to the “Foodservice Business Management Survey Report,” published annually since 2016 by South Korea’s Ministry of Agriculture, Food and Rural Affairs and the Korea Rural Economic Institute (KREI), the combined share of ingredient and labor costs at general restaurants climbed 12.8 percentage points over nine years, from 58.8% in 2015 to 71.6% in 2024. This marks the first time the ratio has breached 70% since the survey began.
The ratio has traced an unbroken upward curve for five consecutive years: 63.6% in 2019, when COVID-19 began spreading, followed by 66.1% in 2020, 66.7% in 2021, 66.8% in 2022, and 69.8% in 2023. Last year it finally surged to 71.6%.
Costs Rise Fast, Revenue Lags
Average ingredient costs rose roughly 1.8-fold, from 58.73 million won (approximately $44,000) in 2015 to 103.77 million won (approximately $77,000) in 2024. As a share of revenue, ingredient costs first crossed the 40% threshold at 40.4% in 2023, then set a fresh record of 40.7% last year.
Labor costs climbed even more steeply. Average labor expenses jumped 2.7-fold over the same period, from 28.73 million won (approximately $21,000) to 78.98 million won (approximately $59,000). Average revenue, by contrast, grew only about 1.7-fold, from 148.83 million won (approximately $110,000) to 255.26 million won (approximately $190,000). With cost growth overwhelming revenue growth, profitability deteriorated rapidly.
The trend in operating profit margin makes the picture even starker. The margin stood at 25.4% in 2015, was cut in half to 11.6% by 2022, and fell below the 10% threshold to 8.9% in 2023. Last year it slid further to 8.7% — roughly one-third of its level nine years earlier.
YearIngredient + Labor Cost ShareOperating Profit Margin201558.8%25.4%201963.6%-202266.8%11.6%202369.8%8.9%202471.6%8.7%
Note: Based on the Ministry of Agriculture, Food and Rural Affairs and Korea Rural Economic Institute foodservice business management survey report. The 2019 operating profit margin was not separately disclosed in the report.
What 70% Means and the Structural Squeeze
In the foodservice industry, a prime cost — ingredient plus labor expenses — of around 60% of revenue is considered a relatively stable operating level. The common industry view is that once the ratio exceeds 65%, it becomes difficult to cover remaining operating expenses such as rent, utilities, card processing fees, and marketing costs.
When the ratio tops 70%, only about 30% of revenue remains after those two cost items. Once fixed costs, taxes, and financing expenses are deducted from that remainder, the actual profit an operator takes home effectively converges on zero.
Kim Seung-il, head of the mutual growth cooperation team at the Korea Foodservice Industry Association, said, “A combined ingredient and labor cost ratio above 70% means the real average profit for shop owners is close to nothing. It’s fair to say that a large number of self-employed operators are effectively running at a loss.”
The surge in cost burdens is attributed to soaring ingredient prices driven by the climate crisis and wars, as well as the added labor cost pressure from South Korea’s hourly minimum wage crossing the 10,000 won (approximately $7.4) threshold last year. But the more fundamental problem is a market structure that prevents operators from fully passing increased costs through to menu prices. Analysts point out that intensifying competition among restaurants makes price hikes difficult.
“The structure of everyone piling onto trendy or popular menu items and splitting the revenue through cutthroat competition is also a problem,” Kim said. “Entry regulations are needed to reduce excessive competition in the foodservice industry, such as strengthening requirements for business startup education.”
The Need to Address Self-Employment Concentration and Improve Distribution
Lee Hee-chan, professor emeritus at Sejong University, believes measures to curb the concentration of self-employment, along with improvements to the food ingredient distribution network, are necessary. “To resolve the hardships of self-employed operators, discussions should prioritize measures to prevent the over-concentration of self-employment, improvements to the ingredient distribution network, and adjusting labor cost standards such as weekly holiday allowances to reflect the realities of the foodservice industry,” he said.
The survey results suggest that the deterioration in South Korean foodservice profitability stems from structural factors rather than a simple business cycle. Ingredient prices and the minimum wage are exogenous variables that individual restaurant operators cannot control, while the loss of pricing power due to cutthroat competition represents a structural vulnerability within the industry itself.
With the number of foodservice establishments reaching saturation, further declines in operating profit margins cannot be ruled out if cost pressures persist. Some in the industry argue that stronger entry regulations and mandatory startup education should be combined with measures such as joint purchasing of ingredients and reducing distribution layers to lower costs.
Dining and Cooking