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| Fried chicken is sold for 6,990 won a bucket at a Homeplus store in Seoul, Aug. 9. Courtesy of Homeplus |
By Kim Jae-heun
Concerns are growing over retailers' financial soundness as they are engaged in an intensifying price war to attract increasingly frugal consumers, according to industry officials, Monday.
Retail store chains and convenience stores, in particular, have been introducing "special" prices for popular food items like fried chicken, pizza and caffeine drinks since June. However, they had not expected to carry on the promotional event for more than a month and have been giving the deep discounts for a wider variety of food products upon customer request, the officials said.
Homeplus kicked off the ongoing price-cutting competition on June 30, when it introduced Dang Dang Chicken for 6,000 won ($4.31) at its stores. The chicken, sold for a fraction of the costs offered by restaurants, instantly won attention with people who were unhappy with local fried chicken franchises raising prices due to inflated raw materials prices and rising labor costs. The retailer has been selling Dang Dang Chicken ever since.
Other retail companies like GS Retail, E-mart and Lotte Mart rushed to join the price war too. E-mart and Lotte Mart started selling half-priced hamburgers and Korean traditional food bibimbap, while GS Retail's convenience store CU introduced a 650 won coffee, which is cheaper than mineral water here.
Homeplus' sales coming from its ready-made food business soared 74 percent year-on-year between Sept. 1 and 13. E-mart and Lotte Mart also saw their revenues increase 26 percent and 40 percent, respectively, in the same period.
Despite the increasing number of customers and rising sales at their stores, retailers are worried about their profitability. The low prices were originally designed to attract customers and leave nearly no profit margin ― if not resulting in a loss.
"It is hard to profit from selling foods at half the price that franchises do. However, when a competitor introduces a new product that gains huge popularity, other retailers have to follow suit if they don't want to be left behind. Their sales may increase but profits can decrease," a local retail official said.
As a matter of fact, Lotte Mart saw a 10 billion won loss in the first half of this year thanks to increased marketing cost. E-mart's operating profit in the same period also plunged 83.1 percent year-on-year. The two companies showed a combined loss of 30 billion won in only the second quarter of this year.
"Retailers will continue to carry on their food discount promotions for some time, but they will soon have to decide whether to stop or keep going with this price war," the official said.
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