According to the Statistics Korea, last year, the domestic retail market size was estimated at about 514 trillion won, reflecting a growth of only about 1% compared to the previous year. This year, low growth is expected to be unavoidable due to a series of complex crises such as the impeachment political situation, the inauguration of the second term of the Trump administration in the United States, the entry into a super-aged society, extreme climate changes, and minimum wage increases. The Korea Chamber of Commerce and Industry even predicted the retail market growth rate to be 0.4% this year. CHOSUNBIZ diagnoses what retail should look like in the era of low growth as the new year begins and what opportunities the retail industry should seize. [Editor’s note]
The retail industry is seeking to change its private brand (PB) product strategy. The era of competing solely on trendiness and price competitiveness is over. A time has come where there must be greater value to consistently attract consumer choices.
According to related industries on the 5th, the life cycle of PB products is shortening. The product life cycle refers to the period from when a product is first launched to the moment it becomes unpopular and sells poorly during the sales process. The short-lived 'Dubai chocolate' is a representative example. Convenience stores showcased Dubai chocolate, which became famous through influencers and YouTubers’ food videos on platforms like TikTok and Reels, as a PB product.
While the price of original Dubai chocolate sold locally was 24,000 won, the PB selling price at convenience stores ranged from 4,000 to 10,000 won. Initially, it gained popularity to the extent of selling out quickly, but that popularity faded in less than a month. An industry insider noted, 'By the time convenience stores introduced Dubai chocolate, the trend had already shifted to Swedish jelly and others,' adding, 'The demand for Dubai chocolate also disappeared with the rapidly changing trends.'
The retail industry is enhancing its PB product strategy. This is due to the limitations of relying solely on ultra-low price competition to consistently attract consumer choices in an era of high prices and low growth. Particularly, considering the growth potential of the PB product market, the specialized PB that combines quality and value has emerged as a challenge that must be addressed. In the first half of last year, the domestic daily consumer goods market was valued at 20.7 trillion won, a decrease of 2.2% compared to the same period in the previous year. Despite the overall decline, the PB product market grew by 1.1%. In particular, convenience stores and supermarkets in the retail channel showed growth rates of 6.6% and 11%, respectively.
As the PB market gradually expands, consumers are increasingly seeking high quality and high value in PB products,' an industry insider said. 'No matter how much similar products compete on ultra-low prices, it has become a default factor that is no longer attractive to them.'
◇“We do not pursue just trendiness and ultra-low prices” … International retail industry considers the ‘value’ of PB products
The international retail industry is pursuing a strategy that adds ‘value’ to PB products presented as trendy and ultra-low priced. Wal-Mart in the United States launched the PB 'Bettergoods' in April last year. Bettergoods is a brand that encompasses a wide range of products, from household goods to clothing and food. The price ranges from $2 to $15, with most being priced under $5 (about 7,350 won). They particularly focus on premium groceries that are gluten-free, sugar-free, dye-free, flavoring-free, and plant-based from a health perspective.
This is a strategy of high quality at low prices. The aim is to create loyal customers among high-income consumers. Wal-Mart reported a revenue of $169.6 billion (about 249.34 trillion won) in the third quarter of last year, a 5% increase from the same period last year. A Wal-Mart representative noted, 'The improved performance is primarily due to increased purchases by high-income customers.'
Japan's Seven-Eleven is introducing a strategy that further segments PB products based on trends reflecting value, health, and eco-friendly consumption. It aims to avoid giving an impression of 'cheap' by simply lowering prices. They divide price levels into 'high quality,' 'everyday,' and 'price competitiveness,' leaving the choice of products and consumption to customers. A representative from Seven-Eleven Japan stated, 'Being the cheapest doesn't necessarily mean being the most popular,' adding, 'We believe improving profitability would be difficult with ultra-low prices alone. That’s why we pursued a strategy where customers determine the value themselves.' This approach is seen as a strategy to enhance customer loyalty by strengthening the image of tailored PB brands.
Germany's Aldi embeds sustainable value in its PB products. As of 2022, the share of PB product revenue in Germany's consumer goods market reached 42.8%. This highlights a significant consumption of PB products. As environmental awareness increases, German consumers consider environmental protection when purchasing PB products, applying this to their PB product packaging strategy. A representative example includes changing the plastic wrap and rings used in the ultra-low-priced Pilsner beer bundles to 100% recyclable paper materials.
Experts advise that in order to survive in the PB market during the low-growth era, new value must be embedded. They note that relying solely on ultra-low price competition reflective of trends results in temporary consumer choices. Lee Eun-hee, a professor in the Department of Consumer Studies at Inha University, stated, 'As the low-growth era is anticipated this year, the market for cost-effective PB products will grow further in the retail industry as a whole. We must pursue high quality and value so that they do not end as ‘flashy products’ that only reflect trends.'
Professor Lee Jeong-hee from Chung-Ang University stated, 'We must abandon the mindset of creating only ultra-low priced PB products,’ and added, 'If we incorporate values aligned with ESG (Environmental, Social, and Governance) management into PB products and establish a positive brand image, there will also be synergy from value-driven consumption.'