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Structural Pressures and Inflation Squeeze South Korea’s 2025 Food Consumption: Retail and Dining Under Strain

General Report May 13, 2025
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TABLE OF CONTENTS

  1. Summary
  2. Structural Decline in Domestic Consumption
  3. Retail Sector Pressures: Convenience Store Decline
  4. Inflationary Impact on Food Spending
  5. Dining Out: A Sector Under Strain
  6. Conclusion

1. Summary

  • As of May 13, 2025, South Korea’s food consumption landscape is undergoing a notable contraction in both retail and dining sectors, a situation exacerbated by enduring structural challenges and acute inflationary pressures. Insights from various reports, including those from the Korea Development Institute (KDI) and industry analysts, reveal that domestic consumption has been in a steady decline, attributed largely to demographic shifts, notably the aging population and changing spending behaviors. The trend, which began shifting sustainably in the early 2000s, has significant implications for the economy, influencing everything from growth rates to consumer spending habits. In the first quarter of 2025, convenience store sales marked a significant downturn, the first since 2013, reflecting mounting pressures within the retail landscape. Major retail chains reported disappointing operating profits, signaling a shift in consumer preferences amid economic strain. Processed food prices surged by 4.1% in April, further straining household budgets and overall consumer spending in the food sector. The inflationary environment—demonstrated by rice price increases and rising dining costs—has led consumers to reconsider their spending habits as they grapple with increased financial constraints, thereby driving changes in both individual dining behaviors and food purchase patterns. Overall, the analysis highlights that South Korea is at a crucial junction where understanding the multifaceted influence of demographic trends, inflation, and consumer behavior is vital for stakeholders in the food service and retail sectors. This insightful overview provides a foundation for examining the complexities of South Korea's food consumption challenges and lays the groundwork for identifying actionable strategies that could address these concurrent issues.

2. Structural Decline in Domestic Consumption

  • 2-1. Long-Term Consumption Trends

  • As of May 13, 2025, South Korea's domestic consumption has been experiencing a significant and sustained decline, attributed primarily to deep-seated structural challenges rather than external shocks such as the COVID-19 pandemic or inflation. The Korea Chamber of Commerce and Industry (KCCI) released a report on April 23, 2025, indicating that domestic consumption levels, which had been steadily rising since 1996, began a downward trend following key economic disruptions. Notably, the average annual consumption growth rate diminished from 9.1% during the period of 1988-1996 to just 1.2% post-2020, exacerbated by a rapidly aging population and shifting employment landscapes. The sustained decline has not only impacted consumption rates but has also reduced the contribution of domestic consumption to the Gross Domestic Product (GDP), plummeting from 56.3% in 2002 to a mere 47.1% by 2021.

  • The sharp decline in the propensity to consume among the elderly population—who now represent 20% of South Korea's demographic—has further exacerbated the situation. Their consumption propensity has notably decreased from 81.3% in 2000 to 64.6% by late 2024. Compounding these challenges is the concentration of wealth within real estate, which significantly limits households' liquidity for consumption, thus contributing to the ongoing decline in expenditure.

  • 2-2. Demographic Headwinds and Saving Behavior

  • Concurrently, the rising life expectancy in South Korea is shifting individual priorities from immediate consumption towards saving, particularly for retirement. A recent report from the Korea Development Institute (KDI), also published on April 23, 2025, highlights a direct link between the increased longevity of South Koreans and a corresponding decline in consumer spending. Between 2004 and 2024, the average life expectancy surged by 6.5 years, from 77.8 to 84.3 years, while the average propensity to consume dropped from 52.1% to 48.5%. This change suggests that as individuals expect to enjoy longer retirements with less stable income, they are more inclined to save rather than spend.

  • KDI's findings underscore that the demographic shifts are generating structural barriers to private consumption growth, which lags behind overall economic growth. With many older individuals preparing for longer periods of retirement amid an unclear employment landscape, their saving behavior is dampening immediate consumption. The KDI forecasts that a potential recovery in consumption may emerge in the mid-2030s, driven by a decrease in life expectancy gains and a wealthier elderly demographic that is likely to enhance consumption capabilities. This necessitates urgent structural reforms across various sectors, particularly in the labor market and financial policies, to encourage consumption and adapt to the evolving demographic landscape.

3. Retail Sector Pressures: Convenience Store Decline

  • 3-1. Q1 2025 Convenience Store Sales Contraction

  • In Q1 2025, the South Korean convenience store sector faced a critical downturn, marking the first significant contraction in sales since Q2 2013. According to the Ministry of Trade, Industry and Energy, convenience store sales experienced a mere 0.4% growth compared to the same period the previous year, with major companies reporting disappointing operating profits. For instance, GS25's operating profit plummeted by 34.6% despite a 2.2% sales increase, while BGF Retail's CU saw a sales rise of 3.2% coupled with a 30.7% decline in operating profit. This extreme drop in profitability can largely be attributed to escalating costs, including labor and overhead, which further strained the financial performance of these outlets. Industry experts suggest that factors such as adverse weather events and operational challenges contributed to the downturn, signaling a shift toward a low-growth phase for convenience stores moving forward. The contraction during this quarter has raised alarms across the sector, hinting at more systemic issues arising from oversaturation and changing consumer preferences in a post-pandemic world.

  • 3-2. Historical Context of Retail Performance

  • The historical performance of South Korea's convenience store market has generally been characterized by robust growth, with year-on-year increases often exceeding 10% until 2018. Afterward, growth rates began to decline, stabilizing around 5% from 2019. This trend reflects not just consumer behavior but also underlying structural changes in the retail environment, including increased competition and market saturation. As of the end of 2024, the total number of convenience stores in Korea surprisingly dipped for the first time since the industry began its rise in 1988, with a reduction of 68 outlets totaling 54, 852 stores. This decline is indicative of a broader narrative within the retail sector—one facing demographic shifts and a challenging economic landscape exacerbated by inflation. As expenses rise and consumer spending declines, convenience stores, which had long thrived on convenience and variety, are being forced to rethink their operational strategies to maintain relevance and profitability in an increasingly competitive market.

4. Inflationary Impact on Food Spending

  • 4-1. Processed Food Price Inflation

  • As of April 2025, consumer prices in South Korea have risen by over 2% for the fourth consecutive month, largely driven by significant inflation in processed food prices. Reports indicate that processed food prices surged by 4.1% during this period, substantially affecting the overall consumer price index (CPI), which reached 116.38, up 2.1% from the previous year. This sharp increase marked the highest rate of growth since December 2023, highlighting a concerning trend in food cost inflation amid various economic pressures. Factors contributing to this inflationary pressure include a recent depreciation of the Korean won, which has increased the costs associated with food imports. The depreciation intensified towards the end of 2024 and appears to have accumulated effects over time, leading to higher prices for both domestically produced and imported food items. The rise in prices for agricultural products, livestock, and fisheries products has also been significant, with livestock prices experiencing the largest gain in over two years, placing further strain on consumer budgets and food expenditure. These processed food price hikes have broad implications for household spending, pushing consumers towards reconsidering their purchasing behaviors and overall food consumption patterns.

  • 4-2. Rising Dining Costs

  • In addition to rising costs for processed foods, dining expenses have also escalated significantly, with dining-out costs increasing by 3.2% as of April 2025. This rate represents the steepest rise since March 2024, contributing to an increasingly challenging environment for consumers who dine out. The inflationary pressure is exacerbated by general service price increases, where overall service costs have risen by 2.4%. Such increases can dissuade consumers from eating out and may result in a shift towards home cooking, as many households attempt to mitigate rising expenses. The continued growth in dining costs reflects prevailing inflationary trends in the broader economy, and it raises questions about the sustainability of consumer spending in this sector. As inflation remains a critical concern, it is likely that many households will adapt their dining habits by seeking value-oriented options or reducing dining frequency altogether. This shift could influence the food service industry’s strategies moving forward, especially as they navigate the delicate balance between covering rising operational costs and attracting consumers in a more cost-sensitive market.

5. Dining Out: A Sector Under Strain

  • 5-1. Price Sensitivity and Consumer Behavior

  • The dining out sector in South Korea is currently experiencing significant strain due to heightened price sensitivity among consumers. As of April 2025, dining-out costs have surged by 3.2%, marking the steepest increase since March 2024. Such inflationary pressures are a major factor in reshaping consumer dining behavior, leading many to reconsider their expenditure on meals outside the home. According to a report by Statistics Korea, this increase in dining costs directly correlates with broader inflation trends in the country, which has seen consumer prices rise by over 2% for four consecutive months. The implications of these rising prices are profound, as they compel consumers to either reduce the frequency of dining-out occasions or seek affordable alternatives such as home-cooked meals or budget-friendly dining options. Furthermore, demographic changes and shifting preferences are contributing to this price sensitivity. As households face rising costs across multiple sectors, the discretionary budgets they allocate for dining experiences are tightening. There is a noted trend among consumers toward prioritizing essential expenditures and reducing non-essential spending, which has led to a contraction in the foodservice industry's growth. This economic climate forces foodservice operators to explore strategies to maintain customer engagement without alienating price-sensitive clientele.

  • 5-2. Prospects for Foodservice Recovery

  • The prospects for recovery in the South Korean foodservice sector remain uncertain, primarily driven by continuing inflationary pressures and shifting consumer behaviors. The increase in processed food prices by 4.1% in April 2025 underlines the ongoing cost challenges that the foodservice sector faces. Given that the core inflation metric returned to the 2% range, there is a potential risk of persistence in these inflation levels, which could further dampen consumer spending in restaurants and cafes moving forward. Moreover, the foodservice industry must navigate the delicate balance between raising menu prices in response to increased input costs and maintaining competitive pricing to attract consumers. As operators assess the situation, many are looking for creative ways to innovate their offerings, streamline operations, and reduce costs while pursuing strategies to enhance customer loyalty. Such measures may include introducing value meals or promoting special offers that cater to budget-conscious consumers. While some optimism exists based on the potential for a gradual recovery in consumer sentiment, catalyzed by effective marketing and targeted fiscal policies that enhance purchasing power, the immediate future indicates that foodservice operators will need to remain agile and adaptive to evolving market dynamics to foster growth and resilience in a challenging economic landscape.

Conclusion

  • In conclusion, the narrative surrounding South Korea’s food consumption in 2025 is marked by a contraction that reflects deep-seated demographic shifts and persistent food price inflation. The alarming trend of declining convenience store sales indicates weakening retail demand and points towards broader systemic challenges that future fiscal policies must address. Soaring costs for processed foods and dining out are redefining consumer behavior, leading many households to adjust their expenditures towards more economically viable options. For policymakers and industry leaders, the task ahead involves not only addressing the underlying demographic trends that drive consumer saving behavior but also fostering resilience within the food consumption ecosystem. Strategic interventions may include the implementation of supportive fiscal measures aimed at increasing disposable incomes and promoting sustainable consumer spending. Across the business landscape, adapting pricing strategies, product offerings, and innovative marketing tactics will be essential to maintain consumer engagement in a tightening economic environment. Looking forward, while the outlook may appear daunting, there remains potential for gradual recovery contingent upon effective policy responses and proactive industry adaptations. A concerted effort to stabilize price points, enhance product mixes, and innovate lower-cost offerings is required to reverse the current contraction. As the dynamics of consumer preferences continue to evolve, the ability of the food sector to navigate these challenges will be pivotal in fostering a vibrant and resilient environment for food consumption in South Korea.

Glossary

  • Structural Pressures: Refers to the long-standing factors that impact an economy or market over time, which in South Korea's case includes demographic shifts and changing consumer behavior that hinder food consumption growth. These pressures are not caused by immediate crises but are deep-rooted challenges that can reshape economic landscapes.
  • Inflation: A general increase in prices and fall in the purchasing power of money. As observed in South Korea in 2025, inflation has been significantly affecting consumer behavior especially regarding food consumption, driving prices higher and forcing consumers to adjust their spending habits.
  • Convenience Store Sales: Refers to retail outlets that focus on convenience, often open for extended hours. In Q1 2025, South Korean convenience stores experienced their first sales decline since 2013, indicative of shifting consumer preferences and economic pressures impacting retail sales.
  • Processed Food: Food items that have been altered from their original form for safety or convenience. In April 2025, processed food prices surged by 4.1%, highlighting the inflationary pressures on consumer spending in South Korea, which forces households to reconsider their food purchase behaviors.
  • Domestic Consumption: The total value of goods and services consumed within a country. In South Korea, domestic consumption has been declining significantly in 2025, influenced by demographic changes and increased savings behavior among the population.
  • Life Expectancy: The average period that a person may expect to live. In South Korea, increased life expectancy has influenced trends in consumer behavior, particularly regarding savings and expenditures, as individuals prioritize saving for longer retirements over current consumption.
  • Consumer Spending: The total amount of money spent by households on goods and services. South Korea’s food consumption decline reflects a broader trend of reduced consumer spending in 2025, prompted by rising costs and demographic shifts.
  • Dining Costs: The expenses associated with eating at restaurants or other dining establishments. As of April 2025, dining costs rose by 3.2%, impacting consumer behavior as many individuals opt for more cost-effective food alternatives amidst rising prices.
  • Demographic Shifts: Changes in the structure of a population, which in South Korea has included an aging population and declining birth rates, leading to a contraction in domestic consumption and altering consumer behavior.
  • Gross Domestic Product (GDP): The total monetary value of all goods and services produced within a country in a given period. The contribution of domestic consumption to South Korea's GDP dropped from 56.3% in 2002 to 47.1% by 2021 due to long-term structural challenges.
  • Korea Development Institute (KDI): A research institute in South Korea that provides analysis and policy suggestions regarding the economy. Their reports have indicated significant links between demographic shifts, life expectancy, and consumer spending patterns in recent years.
  • Price Sensitivity: The degree to which the price of a product affects consumers' purchasing behaviors. As of April 2025, heightened price sensitivity has been observed in the dining sector, leading consumers to adjust their dining habits due to rising costs.

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