A price war between large discount stores and social commerce sites is heating up as Korean baby formula becomes a favoured loss leader for hypermarkets.
Baby formula has been sold at cheaper prices on social commerce sites as part of their pricing strategies, resulting in the proportion of online sales of formula to rise rapidly to almost 50 per cent of total sales.
Some industry watchers even suggest that the online formula market has already exceeded the offline market. While the exact percentage cannot be confirmed, what is certain is that formula is being purchased more frequently through online sites – at the expense of established physical retailers.
Large discount stores such as Emart and Lotte Mart have responded by putting formula on the front lines in their competition to lower prices.
According to Namyang Dairy Products, which has the largest share of the formula market, domestic sales of formula reached 17 billion won (US$13.7 million) last year – 10 billion won from offline sales, and seven billion through online sales.
Just two years earlier, in 2013, offline sales came in at 16 billion won, compared to only 4 billion won for online sales.
Industry sources say consumers in the target market for formula also influence the sales of other products.
“Women in their 30s are the main purchasers of formula. If they migrate to using social commerce instead of actually going to offline stores to buy formula, they would buy other products through social commerce as well. That’s why large discount stores are starting a price war by lowering the costs of formula and diapers,” one Korean retail commentator told KoreaBizwire.
Through the burgeoning price war, large discount stores are seeking to strengthen their online stores based on the success of their offline stores.
Emart officials hope they can kill two birds with one stone.
“By providing the lowest formula prices, we will regain a competitive edge for our offline stores,” said a spokesman.
“At the same time, we hope to elevate the reputation of our online site, Emart Mall.”
The sales of formula that occurred at offline Emart stores dropped 27.9 per cent last year, while Emart Mall saw 12.1 per cent growth.
At the same time, social commerce site Coupang saw a rapid 305 per cent increase in its formula sales in 2015.
- Original reporting by M H Lee of Korea Bizwire.