Nielsen analysis: South Korea

Economic performance is flat but online sales are booming. South Koreans demand efficiency, convenience and value.

South Korea’s economic growth remained relatively flat in 2014, growing just 3.3 per cent, a marginal 0.4 percentage points higher than 2013. The year saw modest growth in exports, while in the face of rising household debt domestic demand decreased and for the fourth consecutive year private consumption growth slowed – down 0.1 per cent to 1.8 per cent growth in 2014 compared to 2013.

In the face of South Korea’s continuing flat economic performance, consumer confidence remains low; Nielsen’s latest Global Consumer Confidence Index saw South Korea post a score of just 46, one of the lowest scores globally and 51 points below the global average of 97. South Korean consumers are focused on curbing their household expenses by cutting down on out-of-home eating, spending on fashion and reducing their grocery bill.

Notably, however, there is a method by which South Koreans are adjusting their spending, with the majority seeking better value rather than unconditionally reducing expenses. This behavioural shift, combined with the fact that South Koreans are becoming increasingly time-poor, is driving demand for products that offer practical benefits and has seen the rise in popularity of neighbourhood convenience stores and online retail channels. Demand for smaller pack sizes and convenient meal solutions is also increasing due to the steady rise of one to two person households; the proportion of South Koreans living alone rose from 16 per cent in 2000 to 24 per cent in 2010 and is expected to reach 30 per cent by 2020. Typically professionals with high-demand jobs and long working hours, these consumers place a premium on convenience and efficiency. (For more on Koreans' relationship with food, and associated brand opportunities, please see "Korea, cooking and consumer culture".)

Factors such as slow economic growth, high personal debt and low consumer confidence levels have created an environment of cautious spending. Consumers are seeking value for money, particularly when purchasing staple items. As a result private-label brands, which are relatively inexpensive, are outperforming as consumers grow more price-conscious.

South Korea’s FMCG market is contracting. In 2014 FMCG sales decreased 1.3 per cent compared to 2013, with slowing sales of household items contributing most significantly to the decline. In a bid to counter softening performance, retailers are honing in on strategies such as elevating the visibility of private-label brands and leveraging big data to strengthen customer engagement. Manufacturers are also focusing on multi-channel marketing to improve brand equity.

While the majority of South Koreans exercise restraint in their spending, in contrast the nation’s wealthy are spending more than ever. Strong demand from South Korea’s fashion-conscious elite has attracted an array of high-end brands. However, even in the luxury market consumers are seeking deals and sales of used luxury goods via online retailers, which often offer less expensive pricing than bricks and mortar retailers.

The increasing popularity of online shopping is having a profound impact on the South Korean retail landscape. South Korea has one of the highest levels of e-commerce engagement globally—88.7 per cent for online and 43.3 per cent for mobile—and the volume of shopping undertaken online has surpassed traditional channels. Thanks to this shift, there is a surge in mobile marketing activity targeted at connected devices, in particular smartphones.

To ride out ongoing economic difficulties in the years ahead, manufacturers and retailers must look to invest in product innovation that taps into South Korea’s shifting demographics, such as shrinking household sizes, an ageing population and growing appetite for healthy and natural products. Efficiency, convenience and value will also play an increasingly important role in driving growth.