As the era of high inflation unfolds, the retail industry is in the midst of a 'low-price competition.' They are showcasing products at shockingly low price points to thaw frozen consumer sentiment and increase sales. The retail industry's launch of low-priced items follows a so-called 'price reverse engineering' strategy. This strategy involves setting a minimum selling price from the planning stage and creating a sustainable cost structure.
According to industry sources on the 30th, low-price competition is intensifying across retail channels that have many touchpoints with consumers, such as large discount stores and convenience stores. Emart recently launched a low-priced whiskey called 'Just for Highball' for 5,980 won. Aimed at highball preparation, it is the cheapest among currently available whiskey spirits. With this whiskey, one can make eight highballs (335㎖) per serving.
Lotte Mart is offering the 'Tongkeun Chicken' (one whole chicken) for a special price of 5,000 won until the 2nd of next month. This is the same price it was when it was first released in 2010. Lotte Mart also introduced 1,000 won private brand (PB) tofu and bean sprouts, which are 50% cheaper than regular products and have become popular enough to rank among the top five in sales for that category.
An industry insider noted, 'From the product planning stage, we set the minimum selling price and reduce marketing expenses and additional costs based on that selling price while minimizing profits and margins, thus lowering prices.' They added, 'Since consumers are sure to engage in value-oriented spending until the economic recovery, the focus is on this aspect.'
Convenience stores are also actively pursuing low-price competition with private brand products. BGF Retail's convenience store CU has released a low-priced PB product called 'Duktem Ramyeon' for 480 won. This is about 50% cheaper than noodles priced around 1,000 won per bag. According to BGF Retail, sales for this product in June increased by 37.5% compared to the same period last year. Since its launch in April 2021, cumulative sales have reached 7 million units. Products such as 880 won cup noodles Yukgaejang, 880 won processed dairy, and 990 won triangular gimbap are also available.
The situation is similar for the convenience store GS25. According to GS Retail, the accumulated sales of the PB ramen 'Myeonwang,' released last year, have reached 1 million units. The weight has been increased by 22% compared to before, and it is being sold at a price of 990 won. In addition to food products, affordable skincare items priced at around 3,000 won, such as Cynic Moisture Tone-Up Sunscreen, It's B Ray Shot 100, and Isnatree Onion Fresh Gel Cream, are also being offered.
The background of the retail industry's ability to launch low-price products lies in the 'price reverse engineering' strategy. Price reverse engineering is a strategy wherein the selling price is set first and a sustainable cost structure is applied. It is a concept that reverses the conventional pricing method of determining the selling price based on cost and profit.
The choice of the price reverse engineering strategy by the retail industry is to reflect consumer sentiment caused by the high inflation trend. This is because the primary consideration for consumers when purchasing products is 'affordable pricing.' An industry insider stated, 'Amid high inflation and recession leading to a significant consumer downturn, the retail industry is undoubtedly jumping into low-price competition as a last resort.'
The retail industry expects that the price reverse engineering strategy will continue for some time amidst the ongoing high inflation trend. An industry insider stated, 'Launching low-priced products serves as advertising in itself, and because they are inexpensive, many will buy them, enabling 'low-price sales'.' They noted that as long as value-oriented spending continues until the economic recovery, low-price competition will likely intensify for the time being, although profitability may deteriorate, meaning they will sell more.
Lee Young-ae, a professor in the Department of Consumer Studies at the University of Incheon, stated, 'This is a kind of incentive aimed at attracting consumers who have disengaged due to high inflation and prolonged recession. As consumers buy low-priced products, they will likely purchase other items available at supermarkets or convenience stores, resulting in a consumer stimulation effect.' She added, 'Low-price competition is expected to continue for some time.'