What are PB products and how do they affect sales?
An E-Mart customer compares Coca-Cola with generic E-Mart Cola. The latter cola, which hit store shelves last autumn, is a joint venture between E-Mart and Haitai Beverage that has been popular with consumers. [JoongAng Ilbo]
Have you noticed ramen packets or milk cartons with the store’s name in big bold letters?
These products are indeed quite different from your ordinary ramen and milk made by big-name companies. They’re generic products, known in Korea as private brand, or PB, products. They’re also sometimes referred to as private label, or PL prodcuts. This means they’re manufactured and distributed by the stores themselves.
Traditionally, retailers — in this case, supermarkets and discount stores — sell products made under an outside company’s name.
PB products, however, carry the name of the store as its brand name.
So let’s say there is a discount store called JoongAng Mart.
And in JoongAng Mart, they sell ramen made from local food companies like Nongshim, Samyang Food and Ottogi.
The mart’s customers would choose which ramen they would buy according to their personal image of the company and how reliable or trustworthy they are.
Then one day, the owner of Joong-Ang Mart thinks, “What would happen if I created a strawberry-flavored ramen product? Being spring, it might be a hit.” Say the owner actually went to a ramen manufacturer to make this product and put a JoongAng Mart Strawberry Ramen label on the packet to be exclusively sold in JoongAng Marts.
This is the basic theory behind PB products — a retailer thinks of an idea for a product, calls a manufacturer to make it and then sells the items in its stores using the store name for the product branding.
One big advantage of PB brands is that they are cheaper. Why? Because when a specific food company, like Nongshim, makes an item, it needs to go through various stages, including marketing and advertise, to make the product known to the public. On top of these expenses, there’s the costly shipping and handling fees to get these products in the stores.
These stages all add up to increase the original price of the item.
However, with PB products, many of these stages are considered unnecessary and can be skipped.
Retailers don’t spend much on marketing and shipping because these products are sold solely to customers who visit the specific store.
For leading discount stores such as E-Mart, Homeplus and Lotte Mart — which buy in bulk — the manufacturing costs also go down.
In Korea, PB items are around 20 to 30 percent cheaper than items made by big-name food companies.
Providing cheaper alternatives for consumers is quite an advantage, especially during times when raw material and food prices are skyrocketing globally.
Even with these advantages, PB products have faced criticism.
For food companies, PB products create competition that is hard to beat.
Some say that PB products narrow the choices for consumers in the long run. By creating these cheaper products, these stores ultimately force food companies to reduce the price of their products.
Retailers are saying that by producing more PB products, they are giving small and medium-sized enterprises a chance to develop and step into the industry.
Small and midsize businesses need this leg up because while they are capable of tapping into this market, they do not yet have mass brand appeal.
Also, by making PB products, these smaller ventures are going to see more profit and work harder to meet demand.
There are pros and cons to the circulation of PB products.
In one respect, they may make for stiff competition for food companies which might generate low-cost, low-quality products with no imagination. On the other hand, they may give the little guys a chance to break into the industry and lessen the “brand-oriented” shopping preferences of many consumers.
The first Korean PB product was sold in 1974 when Shinsegae launched a clothing brand named Peacock.
The first PB product at a Korean discount store was E-Plus milk by E-Mart in 1997. The PB industry is still in its infancy in Korea.
What about PB products abroad?
In England and the U.S., which have a much longer history of discount stores and retail shopping in general, PB products were first launched during the late 1800s.
Even at Homeplus, the store that carries the most PB items in Korea, only 20 percent of their sales come from PB products. In the case of U.S. discount chain Wal-Mart, around 50 percent of their sales come from PB items.
From top to bottom: Best-selling private brand products Alleyway ramen by GS 25, Lotte Mart’s bathroom tissue and E-Mart’s Bongpyeong mineral water. [JoongAng Ilbo]
One key difference between local and foreign PB products is the labeling on the package. Korean food safety regulations state that PB items need both the retailer’s name and the manufacturing company’s name on PB items.
So for example, if JoongAng Mart’s Strawberry Ramen was manufactured by the imaginary Joins Food Manufacturer, the ramen packet would list both JoongAng Mart and Joins Food Manufacturer.
However, foreign PB products do not need to state the manufacturer.
This also has pros and cons. For the manufacturer, stating its name on the product could be an advantage. This way, they can introduce themselves to customers and have the chance to gain the public’s trust.
Last fall E-Mart launched E-Mart Cola with leading company Haitai Beverage, and used Haitai’s brand name to their advantage and did very well with the item.
On the other hand, the store said that some PB products which are in collaboration with smaller manufacturers are not doing as well. Many customers say that they feel uncomfortable buying a product which is made by an unfamiliar company.
Lotte Mart, on the other hand, used this to its advantage by launching a campaign to revive small and midsize ventures in Korea, putting the MPB, or Manufacturing Private Brand label in bold letters in front of each PB item. It was even larger than their Lotte Mart logo.
With this marketing strategy, Lotte Mart sought to take responsibility for its PB products and help small and midsize ventures gain the faith of the public.
[jainnie@joongang.co.kr]
with the Korea JoongAng Daily
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