Orion’s strategy to keep product prices low pays off

Orion Vice Chairman In-cheol Heo’s pricing strategy seems to be working, which is to “maintain prices and grab more market share.” [Sources : Orion]

Orion Holdings Corp. is seeing higher earnings even though the company decided not to raise prices of some of its products.

The snack maker’s domestic sales in the first 11 months of last year was estimated at 849.2 billion won ($682 million), 15.9 percent increase from a year ago, according to financial investment industry sources on Thursday. The growth rate for the entire 2022 is estimated to be 16 percent, as there weren’t any negative issues concerning sales at the company. This is the first time since 2011 that the company has seen two-digit growth rates. Orion’s overseas subsidiaries have also seen growth, with a rise of 9.5 percent in China, 38.3 percent in Vietnam and 80.7 percent rise in Russia, bringing its total sales to 2.56 trillion won.

Orion’s overall growth was mostly driven by high demand for its snacks and confectionery products. As for the company’s domestic sales, key products recorded 634.8 billion won in sales, a 12.7 percent year-on-year increase. The upward trend is notable compared to sluggish growth trends among its competitors, including at Crown-Haitai Confectionery Group and Lotte Confectionery Co.

Orion Vice Chairman In-cheol Heo’s pricing strategy seems to be working, which is to “maintain prices and grab more market share.”

The snack and confectionery market has been regarded as a declining industry for a long time due to the rapid decline in young population in Korea, driven by low birth rates. Growing market of imported confectionery and dessert products has also been seen as another threat to the snack business. Despite stagnating growth, market competition in the industry is fierce, as products are often driven by impulse buys.

Orion’s positive sales and growth figures, though, overcoming those challenges, are seen as a win from the strategies of Vice Chairman Heo. Since his appointment in 2014, Heo has been telling the company to focus on market share with reasonable pricing mechanisms, instead of price increases.

Heo’s strategy reflects the characteristics of the company’s products. Prices of its 44 main products, among its wider range of 60 products, were unchanged since September, increasing on an average of only 15.8 percent across 16 products. The price increases were the first since 2013. This is in contrast to its competitors that have raised prices at different product groups every year.

Cutting unnecessary costs was the key to keeping both low prices and quality. Low-profit projects have been cancelled, and promotional events, like “buy one, get one free,” were thrown out. Purchases of source ingredients are now bought group-wide to cut production costs. In the past, the domestic and overseas subsidiaries had been purchasing ingredients separately. In the third quarter last year, Orion’s operating profit margin topped 15.8 percent, far higher than the industry average of five to six percent. Orion will either increase production volume or lower prices if ingredient prices and energy costs stabilize, the company said.

Orion’s new businesses are also doing well. Sales of its granola products was 13.4 billion won, a three-fold growth after only four years since its launch. The company is also pushing forward with its biologics business with a colon cancer test kit going through clinical trials and plans to gradually expand its water line.