[Edaily Reporter Kim Ji-woo ] Despite the World Cup and an early heat wave, the profitability of major domestic beverage companies has actually deteriorated. While sales increased slightly, driven mainly by sports drinks and carbonated beverages, analysts say this was not enough to offset sluggish domestic consumption and rising raw material prices.

According to industry sources on the 5th, #LotteChilsungBeverage’s second-quarter beverage business revenue totaled 500.5 billion won, a 1.7% increase from the same period last year. Operating profit fell 13.2% to 20.5 billion won.

Carbonated beverages account for the largest share of sales in LotteChilsungBeverage’s beverage business. Sales of carbonated beverages reached 221.8 billion won, a 3.1% increase from the previous year. This was driven by the expansion of zero-calorie products and increased seasonal demand due to more outdoor activities in the spring and summer.

Sports drinks showed the strongest growth. Driven by an early heatwave, increased outdoor activities, and sustained demand for healthy hydration, sports drink sales rose 8.5% compared to the same period last year. Additionally, coffee drink sales increased by 4.1% due to demand for ready-to-drink (RTD) coffee and the launch of new products. In contrast, juice sales fell by 8.5%, while bottled water and energy drink sales declined by 3.1% and 1.8%, respectively.

LotteChilsungBeverage explained, “Profitability declined as the burden of operating expenses persisted due to sluggish domestic consumption, a strong exchange rate, and rising costs for key raw materials and logistics resulting from the war in the Middle East.”

LG H&H(051900)The Refreshment Division, which handles the company’s beverage business, showed a similar trend. Second-quarter revenue reached 461.4 billion won, a 0.5% increase year-over-year, but operating profit fell 15.1% to 36.1 billion won.

In the second quarter, LG H&H focused on expanding its market presence by highlighting key brands in various categories, such as Coca-Cola, energy drinks, and hydration beverages (fluid and electrolyte replenishment drinks). The company launched products like “Sprite Zero with Tea,” featuring limited-edition Coca-Cola packaging symbolizing World Cup participating nations and eye-catching combinations that garnered attention on overseas social media platforms. Nevertheless, these efforts did not translate into improved profitability.

LG H&H stated, “Operating profit declined as cost pressures increased due to rising prices of raw materials and supplies stemming from political instability in the Middle East.”

Analysts attribute the deterioration in profitability at both companies to rising costs for raw materials and packaging. In particular, LotteChilsungBeverage’s financial figures reflect the burden of rising prices for beverage containers such as cans and PET bottles. The average purchase price of LotteChilsungBeverage’s beverage containers rose by 8.8% from 114.9 won in the first quarter of last year to 125 won in the first quarter of this year. Conversely, prices for sugars and additives fell by 5.5% due to a decline in international market prices. Packaging materials account for 52% of total raw material and supply purchases. In effect, the price of the containers holding the products put more pressure on profitability than the contents themselves.

Sales growth and profitability recovery may continue to diverge in the third quarter as well. This is because even if sales of carbonated and sports drinks increase due to the heatwave, it will be difficult for the sales growth to translate into improved profits as long as the burden of packaging and logistics costs persists. Another variable is the possibility that demand for ready-to-drink beverages in outdoor consumption channels, such as convenience stores, may slow down as outdoor events and activities decrease due to the extreme heat.

An industry insider stated, “It is difficult to respond to rising packaging costs in the short term, so companies have no choice but to shoulder a significant portion of the cost burden,” adding, “If temperatures become excessively high, outdoor activities will decrease and consumption will shift indoors, making it highly likely that ready-to-drink beverage sales will fall short of expectations.”