Chains’ private brands are going upmarket

Customers choose an E-Mart private-brand (PB) beverage, left, while a Lotte Mart shopper holds up the retailer’s PB brand of tofu, right.Provided by each company

Privately branded products developed by major retailers including E-Mart and Lotte Mart used to be considered good values, but less than enticing in the quality department. However, times are changing for such brands.

In the category of foods, more private-brand (or PB) products are using organic ingredients or ingredients sourced here in Korea. And PB lines are going beyond basics like vegetables in bags to such consumer electronic products as microwave ovens.

As a result, PB lines that used to be sold in the far reaches of stores are now taking up more prominent shelf space with higher exposure.

When PB brands were first introduced in Korea in the late 1990s and early 2000s, they focused more on quantity than quality.

They targeted budget shoppers and most of the products were daily necessities, especially food. In what it is considered the second generation of PB products, released between 2008 and 2013, the quality and variety improved. This is when retailers like E-Mart started to introduce a higher-end line.

But starting this year, retailers further raised the quality to premium levels.

Premium PB product releases, however, are also a glimpse of the desperation facing retailers today. Profits across the board are shrinking while fierce competition has only added to their woes.

“We can only survive when we plan and release a product that not only is better in quality when compared to existing products, but also when we release products that didn’t exist before,” said an E-Mart official.

Retailers are no longer simply displaying and selling products manufactured by other companies but are taking a more aggressive approach by planning new products that will stand out and appeal to customers.

Since introducing a bucket of fried chicken at an affordable price under the PB brand Tongkeun Chicken, Lotte Mart has revved up its Tongkeun series.

Tongkeun literally means bold or generous.

E-mart created a PB brand named Peacock that sells products that can be instantly cooked with hot water. This brand has been attracting customers with roughly 500 varieties and has its own separate shelf.

The race for premium PB products is expected to grow next year.

E-Mart already is planning to widen its premium line while getting rid of its existing high-end line. Since 2009 E-Mart has been offering three different levels of PB brands: “best” for high-end products, “E-Mart” for mid-level and “Save” for the cheapest, lowest-quality goods.

The aim of E-Mart is to improve the packaging of its PB brand food products to change the general perception that PB products are cheap and low quality.

Lotte Mart is planning to expand its top premium products launched in April.

The retailer launched PB goods under the name “Premium Gold.” These are sold as top-quality goods.

The response from consumers was more positive than the retailer expected. One example is locally produced premium milk. The retailer said although its Premium Gold milk is twice the price of other premium milks, it quickly sells out.

Rival E-Mart recently introduced sesame oil PB product made out of sesame from Jeju. Sesame seeds from Jeju are considered some of the most expensive in the country. But E-Mart is planning to offer the product at reasonable prices by cutting back on marketing and distribution costs.

Since last month, E-Mart has been selling nuggets made out of salmon instead of chicken under its private brand, which is the first such product in the country.

E-Mart’s PB sales in 2006 were 450 billion won ($409 million). That figure is expected to surge to 3 trillion won by the end of this year. Moreover PB product sales now account for 21 percent of all sales made at E-Mart. In 2006, PB products only accounted for 7 percent.

For Lotte, PB take up 25 percent of all sales.

But as retailers crank up their PB lines, there are concerns over the impact they may have on other suppliers.

Some people say such competition from the powerful chain stores is unfair.
BY lee ho-jeong [ojlee82@joongang.co.kr]