According to the Statistics Korea, the domestic retail market size last year was estimated at approximately 514 trillion won, with growth limited to around 1% compared to the previous year. This year, low growth due to a combination of crises such as the impeachment political situation, the inauguration of the second term of the Trump administration in the U.S., entering a super-aged society, abnormal climate, and minimum wage increases is unavoidable. The Korea Chamber of Commerce and Industry also predicted a retail market growth rate of 0.4% for this year. CHOSUNBIZ examines what distribution fits the low growth era as the new year starts and what opportunities the retail industry should seize. [Editor’s note]
Upon entering the 'OK Store Ginza' in Ginza, Tokyo, Japan, at around 4 p.m. on the 18th of last month, a large slogan caught my eye. While it is a supermarket located in an area densely populated with luxury brand stores and known as one of the most expensive places in Japan, it looked like a regular neighborhood supermarket. The OK Ginza store, which opened in October 2023, saw its sales increase by 20% compared to its initial opening in the first year. A Japanese distribution magazine selected this store as a must-visit supermarket.
◇Everyday low prices... Japan's fresh food lowest price supermarket phenomenon
The OK Ginza store, measuring 2,140 square meters (approximately 650 pyeong) over 2 basement floors, is a fresh-focused discount supermarket. It sells fresh produce, meat, and fish at cheaper prices than conventional supermarkets and has increased its own brand (PB) products to lower processed food prices.
Entering the basement first-floor store, I was greeted by fruit and vegetable displays. True to its fresh-focused nature, each product had a sign noting the 'origin' and 'price' attached. The enoki mushrooms were from Nagano Prefecture, and the broccoli was from Kagawa Prefecture, along with information about the producers, nutrients, and cooking methods. Prices were 155 yen for a pack of enoki mushrooms (including tax), 72 yen each for carrots from Chiba Prefecture, and 609 yen for three apples from Aomori Prefecture.
The fish display showcased frozen seafood from around the world, including Norwegian salmon, Chilean silver salmon, Russian king crab, and black tiger shrimp from Papua New Guinea. There was even super-low-temperature tuna that had been frozen at minus 50 degrees. Freshly prepared sashimi was also available for sale, with a set of assorted sashimi priced at 2,076 yen. The meat counter offered domestically sourced top-grade beef and pork, as well as imported Spanish Iberico pork and horse meat.
Alongside the fresh food counter, the bustling area was the deli (ready-to-eat food) corner on the second basement level. Various items were displayed, ranging from 1,069 yen sushi platters to 430 yen katsu-don (pork cutlet rice bowl) bento boxes, and side dishes priced between 100 and 300 yen. The roast katsu (loin cutlet) priced at 332 yen reportedly sold 6.4 million units annually. Many customers picked up pizzas priced at 1,028 yen each. The Ginza area is known for lunch prices starting at at least 10,000 won, so many office workers come here to buy lunch boxes.
As closing time approached, some ready-to-eat items were discounted, but all other store products were sold at regular prices. Since they were originally priced as the lowest, there was no need for discounts.
◇Operating profit margin of 5.9%... The secret to popularity is 'high quality·EDLP'
Founded in 1982, OK operates more than 160 regional supermarkets centered in Tokyo and the metropolitan area. Compared to national large-scale mart chains like Aeon Mall and Ito-Yokado, it is smaller but shows high growth rates and has recently expanded its stores to the Kansai region.
As of March last year, OK's annual sales were 623 billion yen (approximately 5.85 trillion won), showing an increase of about 13% from the previous year, while operating profit rose by 26% to 33.69 billion yen (approximately 316.8 billion won). The operating profit margin was 6%, higher than the industry average of 2% to 4%.
The secret to high growth is selling good food at the lowest prices in the region. While all discount stores advertise low prices, it is rare to find places that consistently sell at low prices. Ryotaro Ninomiya, president of OK, noted in an interview with Japan’s TBS last August that their management policy of 'high quality Everyday Low Price (EDLP)' is the key to their popularity, stating, “We're ensuring that customers feel like they never lose when they shop at OK.”
According to President Ninomiya, regardless of the economy, it is a common sentiment for consumers to want to buy good products at low prices. The initial reaction to the Ginza store opening in the luxury brand district was skepticism, but after one year of operations, the profit margin was reported to be 8.7%. OK reduces prices under store authority if it is even 1 yen higher than competitor stores. In the early days when negotiations with suppliers were challenging, they maintained their 'Everyday Low Price' policy at the expense of their own profit, leading to a virtuous cycle.
Transparency in quality is also emphasized. A notable example is an 'honest card' that attaches a note stating, 'The quality of lettuce is poorer than usual due to the rainy season, so please purchase other products for now.' This policy has built trust with customers, and until last year, OK ranked first in customer satisfaction among supermarkets according to the Japan Customer Satisfaction Index (JCSI) for 15 consecutive years.
Japan's supermarket industry is facing stagnation due to aging and an increase in single-person households. Major retailer Seven & I Holdings is currently in the process of selling Ito-Yokado, which has been the foundation of the company for over 100 years but has reached the point of selling the business after continuous deficits. Thus, OK's growth case is viewed as highly significant within the industry.
◇Fresh food discount stores also emerge in Korea... 'Emart Food Market' opens
The 'OK-style' selling strategy seems to be entering Korea's supermarket industry as well. Emart, the largest discount retailer in Korea, last month introduced the 'Emart Food Market,' a grocery hard discount store (HDS) in Daegu Suseong-dong, enhancing fresh food offerings. It is a store that literally sells fresh food at consistently low prices.
The reason Emart has undertaken this initiative is also due to poor performance. In addition to the increase in single-person households and aging, the growth of e-commerce led by Coupang has hit large mart retailers hard. Emart reported its first deficit since its founding in 2023 and executed its first voluntary retirement program last year.
Emart has merged its large mart (Emart) and supermarket (Emart Everyday) corporations to increase business efficiency, and following their 'price reversal project' quarterly, they are seeking growth through fresh food-focused discount stores. With a penetration rate of 30% to 50% in the domestic e-commerce market, the food penetration rate is around 20%, leading to the assessment that there is potential for success. In this context, Lotte Mart is enhancing its fresh food and grocery offerings under the name 'Grand Grocery,' while Homeplus is doing the same under 'Mega Food Market.'
According to Emart, fresh food prices at the Emart Food Market are 20% to 50% lower than those at existing discount stores. They significantly lowered the purchasing unit cost by contracting with key products on an annual basis. Through this process, strawberries priced about 30% lower than the market price upon opening sold 2,000 packs.
Processed foods like milk and toilet paper were introduced under the 'reasonable low price' series using products developed in collaboration with distribution and manufacturing brand (PNB) partners. PNB represents a middle ground between retailer private brands (PB) and manufacturer brands (NB) and consists of products sold exclusively at specific retailers. Additionally, in non-food areas like detergents and cleaning supplies, only essential products are offered at uniform prices of 1,990 won, 2,990 won, and 3,990 won.
An Emart official stated, “With the strong response to fresh food and deli, our sales exceeded targets by 1.5 times since opening, and essential products sold twice as much as the target,” emphasizing, “The Emart Food Market is a new format that aims for 'everyday low prices' that is neither a large mart nor a supermarket.”
As the industry continues to face a low growth trend, interest in cost-saving business models is expected to increase. Eun-Jeong Yoon, a responsible researcher at the Korea Chamber of Commerce and Industry Distribution Logistics Promotion Institute, noted, “While the German supermarket Aldi has developed ultra-low-priced private brand products focusing on popular items to realize EDLP, OK has succeeded with a Japanese-style EDLP strategy of enhancing fresh food,” adding, “However, these companies solely operate in EDLP. For companies like Emart that engage in multiple business formats, care must be taken to avoid cannibalization that diminishes the status of existing businesses.”