[Outlook]Unleash E-MartOne duty of sellers is to provide quality products to the market at lower prices. That is in the interest of sellers as well. They can sell more that way, and consumers can buy good products for good prices. Both parties are happy. However, things are not that simple in reality. E-Mart, Korea’s largest discount retailer, has sparked controversy by marketing its store-brand products.
Store brands are those produced by a manufacturer and sold using the retailer’s name. E-Mart stores recently added 3,000 such products to their shelves. Discount retailers have had their own store brands before but those products gave the impression that their quality was not that high. But to maintain its reputation, E-Mart developed quality products for prices 20 to 40 percent lower than brand-name items.
E-Mart has worked on this project for two years, and consumers responded immediately. As for instant noodles, Shin Ramyun by Nong Shim has dominated the market, but E-Mart’s new instant noodles are competitive enough to dent Shin Ramyun’s sales. Hatban, pre-ready rice sold by CJ, was pushed down to second place by E-Mart’s cooked rice, “Rice fit for the queen,” in sales in E-Mart stores. The company’s project was allegedly influenced in part by a series of reports in the JoongAng Ilbo titled “Things are too expensive in Korea.”
To produce private label products might seem like a new sales strategy but it has been around for a long time and is called original equipment manufacturer, or OEM. A company, usually a conglomerate, places orders with small and midsized companies to produce certain products and then the big company sells them under its own brand. Private label products are basically the same as OEM products. The difference is that discount retailers, not conglomerates, make the orders. Both methods involve placing orders with other companies to provide certain products.
But why do private label products cause controversy even though they are no different from OEM products in principle? Because the small and midsized companies that actually produce the goods are vulnerable. They cannot refuse a giant retailer’s request. OEM orders are like commands to manufacturers. Even when a retailer asks for a large discount in prices, a manufacturer has no choice but to grant it. A retailer pays money, and a manufacturer gets money. A buyer is always more powerful than a seller. The relationship between the two is more or less the same around the world anywhere that practices capitalism.
Even in the United States, it is an open secret that salesmen for pharmaceutical companies treat doctors and that staff at hospitals well. Pharmaceutical companies are said to be giving gifts to doctors and sponsoring seminars in luxurious resorts.
Things have been like that for a very long time. In these times, retailers rule manufacturers. In the media, reporters work hard to write articles but Internet portals that merely deliver those articles act as if they themselves did all the work. Samsung Electronics, the world’s leading manufacturer of home appliances, needs to work hard to please Best Buy, a U.S. retailer. Otherwise Samsung products will not be given prominent placement in Best Buy stores. When Samsung raises prices, it needs to be careful with Best Buy because the retailer doesn’t want its sales volume to decline.
In relationships based on favors, the ones receiving the favors are always weaker and poorer. However, countless manufacturers want to assume this weak role but they can’t. Manufacturers wait in line to have their OEM goods sold in a discount retailer’s stores.
After E-Mart announced that it would expand store-brand products, Kwon Oh-seung, the chairman of the Fair Trade Commission, said that to sell products for lower prices will be good for customers but burdensome for manufacturers. It was kind of a warning that the company must not bully small and midsized manufacturers. However, there are countless manufacturers in the market that dream of being on the seller side. It seems that Kwon was unaware that all competitions leave wounds, and that along with pain, prices go down significantly.
Korean retailers are very special. Wal-Mart of the United States and Carrefour of France, the world’s leading discount retailers, have failed in Korea. In a sense, this means that the competitiveness of Korean retailers is unusual.
Those Korean retailers have taken a leading role in cutting down the prices of goods. To produce store-brand products can be said to be another price revolution. The Korean government must not attempt to hinder retailers’ efforts to improve their competitiveness and benefit their customers.
*The writer is the senior business news editor of the JoongAng Ilbo.
BY Shim Shang-bok