Retailers diversify sourcing routes as costs rise

2024.02.28 09:41:01 | 2024.02.28 09:42:52

[Photo by Yonhap]이미지 확대

[Photo by Yonhap]

South Korean retailers are taking steps to diversify their product sources to stabilize product prices and retain customers as prices continue to rise.

E-mart Inc., the big box store chain operated by the Shinsegae Group, is striving to stabilize product prices by reforming its sourcing structure. The zero-calorie cola from E-mart‘s in-house brand has been sold at 980 won ($0.74) per liter since its launch in 2018, making it about 25 percent cheaper than its rival products. Coca-Cola Co.’s Coca-Cola Zero was being sold for 1,300 won per liter and PepsiCo Inc.’s Pepsi Zero Sugar for 1,330 won on the online retail platform as of Tuesday.

E-mart sourced the finished zero cola product from a U.S. partner when it launched in 2018 but has been sourcing raw materials and manufacturing the product within Korea with domestic partners since 2023. With its low price, E-mart’s in-house zero cola has garnered a positive consumer response, with sales in 2023 up by more than three times compared to 2021.

Other retail giants are also employing strategies to lower prices and attract more consumers by changing their sourcing methods. Lotte Shopping Co.’s Lotte Mart released a sterilized milk product in February 2024 and has ensured the product’s relatively low price thanks to direct sourcing overseas. It imports 1-liter sterilized milk directly from Polish dairy company Mlekovita SA without using intermediary distribution channels, enabling it to sell the 1-liter milk for 1,900 won.

The retail industry is also investing in integrated sourcing, whereby each organization responsible for distribution jointly source goods at lower costs instead of sourcing them individually. Lotte Mart and Lotte Super significantly increased profits by introducing integrated sourcing in 2023, an example of which was the joint sourcing of 550 tons of pickled cabbage. The two Lotte retail chains saw their operating profit increase to 72.9 billion won in 2023, a 4.6-times increase from the previous year and a stark contrast to the 2 percent increase in operating profit at Lotte Shopping’s department store chain during the same period.

E-mart, which operates a big box store chain as well as supermarket and corner store chains, also plans to secure price competitiveness by integrating its three distribution channels. Chief Executive Officer Han Chae-yang will oversee all three channels after the 2023 executive reshuffle, and the company is reportedly exploring ways to create synergy in purchasing and logistics.

The retail giants are also strengthening their offline competitiveness, particularly in fresh food, and harnessing artificial intelligence (AI) to survive. Lotte Shopping Vice Chairman Kim Sang-hyun, who oversees the retail divisions, said during his New Year’s remarks that the company “is preparing to use AI” and unveiled its plan to export in-house brand products to the United States.

By Lee Hyo-seok, Park Chang-young and Chang Iou-chung

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