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Discount retailer Home Plus has lowered the prices of its 600 private brand products by an average of 12 percent. The price of a 500 g bag of flour has dropped from W1,470 to W1,410 (US$1=W937), while a pack of instant noodles has gone down from W450 to W410. The price of 400 g of tofu has gone down 40 percent, from W980 to W600.
Over the past year, international grain and soybean prices have risen between 80 to 90 percent. As a result, prices of products sold in Korea have also risen steeply, with the price of a pack of instant noodles rising W100. It's good news for consumers that Home Plus has slashed the prices of products like flour, instant noodles and tofu that use grain or soybeans as ingredients.
Home Plus is said to be planning to market 4,700 products at lower prices, including spring apparel which will be sold at prices 20 percent lower than last year. In October of last year, E-Mart was the first of Korea's large discount retailers to introduce its own private brand products that were between 20 to 40 percent cheaper than existing ones on the market. This year, E-Mart increased the number of its private brand products to around 15,000, while introducing around 60 private brand products whose prices will remain up to 40 percent cheaper than competing products all year long. A revolution is taking place in product pricing and in the distribution industry.
Home Plus and E-Mart were able to lower the prices of their private brand goods by placing orders directly with manufacturers, cutting costs that would have gone into paying middle merchants and for marketing and advertising. This shows just how much of a product's price can actually be reduced.
When it comes to the price of beef and pork, the distribution margin accounts for an average 40 percent of the retail price, meaning the profit that middle merchants make end up raising prices by that much. Urban consumers pay W1,500 for one kilogram of carrots that were sold for W370 by a farmer. The prices of products rise as they pass through a complicated network from wholesaler to middle merchant to mid-level retailer to final retailer. This outdated distribution network is one of the main reasons why consumer prices in Korea are among the highest in the world.
Streamlining this bloated distribution system could minimize the impact that soaring crude oil, raw materials and grain prices have on consumer prices. Legal and systemic support measures should be developed to ensure that the revolution taking place at discount retail stores can expand throughout society.
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