Jun 22, 2017

South Korea market snapshot: Sluggish outlook despite nonstop shopping

Nielsen provides insight into South Korea's economic outlook and retail backdrop.

South Korea market snapshot: Sluggish outlook despite nonstop shopping
Nielsen provides insight into South Korea's economic outlook and retail backdrop.

South Korea’s economy continued its sluggish performance closing the year at 2.7 percent for 2016. Increased external competition and an internal economic slump in the all-important cars and electronics industries remain major challenges.

Consumers are losing hope for a quick economic recovery and it was not surprising that the consumer confidence index dropped three points to 43 in Q4. This negative consumer sentiment is contributing to a vicious cycle of weak domestic demand. Intention to spend is the lowest in the region with one in eight consumers (12 percent) believing it is a good time to buy the things they want or need considering the cost of living and state of their personal finances.

However, the overall market did show some signs of recovery on the back of the strong performance of the FMCG industry, which recorded 5.2 percent growth in Q4. E-commerce across the retail sector continues to boom as the online channel grew 20.5 percent and the mobile channel grew 41.9 percent compared to 2015.

As the internet enables consumers to shop anytime, anywhere, Koreans are spending more time shopping than ever before. Koreans access shopping malls on average 14 days per month, while the top 25 percent of heavy shoppers are visiting shopping-related sites or apps 27 days each month. Consumers no longer have to spend their weekends shopping for weekly basics but instead grocery shopping is done during their weekly commute via smartphones.

Home care and personal care products are rapidly evolving with eco-friendly and safety issue credentials finding favor with consumers who are increasingly looking for clarity on ingredients and the supply chain. These types of winning approaches are becoming of interest to other markets in the region as South Korea is cited as one of the world’s leading e-commerce environments. A highly developed technology infrastructure, coupled with intensive investment by manufacturers has led to increased consumer spending in the ecommerce channel.

The launch and expansion of premium brands in the small luxury category has also improved product quality. In particular, the home meal replacement category has enjoyed market growth due to the increased proportion of single person households and greater consumer demand for variety, including gourmet foods. The home meal replacement category is expected to grow further based on the convenience channel's growth and quality and variety of private brands. 

Longer term factors such as slowing population growth and an aging demographic account for a sluggish domestic consumption forecast. As a result, Korean manufacturers are increasingly looking outside their domestic borders to emerging markets hungry for Korean brands. The success of Korea’s TV, music, fashion and beauty industries is said to have driven international consumer acceptance of Korean brands. 

Despite the subdued economy and recent political turmoil, the retail market is proving resilient and decent growth opportunities remain. Opportunities exist in the premium price tier and manufacturers that can leverage consumers’ movement toward e-commerce will do well.

Sources: All population and urbanisation figures come from United Nations Urbanisation Prospects 2015.


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