South Korea’s supermarkets turn to e-commerce

Market research firm Euromonitor expects the proportion of grocery’s total value capture from internet sales to continue growing. Another market research company, Nielsen, said that Koreans are the heaviest online buyers in Asia, with 59 per cent allocating more than 11 per cent of their monthly spending for online purchases.

As such, leading brands, including Lotte, BGF Retail, Homeplus, E-Mart and GS Retail have all strived to improve their online retail systems and implement a more diverse range of promotional events for online customers. Even independent mall grocers in the country have begun offering ecommerce channels and free delivery services to fight competition from the big modern grocers.

According to Just-food.com, Lotte said it relaunched its site in order to offer improved flexibility and convenience. The move is clearly an effort to address a more competitive landscape.

According to Simon Hathaway, Cheil's president of shopper marketing and retail operations, smart retailers are no longer differentiating between channels. Eventually, the location of a retailer on one’s smartphone will be as important as their location in your city.

“The future will be cross-channel solutions and it will be driven by mobile, so retailers are focusing more and more on promoting their mobile solutions.”

Retailers are using innovative tactics to promote their e-commerce and m-commerce businesses.

Earlier this year, E-Mart, the oldest and largest discount retailer in the country used a WiFi balloon, which sent mobile coupons to anyone within its range to hard-sell the company’s mobile application. E-Mart wanted to woo consumers who do not normally shop in the store. It used the remote-controlled balloons to give more people an option to download its mobile coupons, which they could use on the retailer’s mobile application.

The move paid off. Sales on E-Mart’s e-commerce site shot up 157 per cent from the previous year and its app downloads increased by 50,000 during the campaign month, the company said.

Cheil was the agency behind the Wi-Fi balloon campaign.  “We understand that people expect retail to be everywhere, instant and personal, so we are creating ideas that deliver that experience,” Hathway said.

More recently, Cheil created an in-store solution where people used their mobile phones to navigate the store and get the best prices. The E-Mart Sale Navigation application proved how its click business might connect with its bricks business in the future.

Two years ago, Tesco, which renamed itself as Homeplus, launched virtual stores to help consumers shop more conveniently. Customers used QR codes to make purchases and the company delivered orders to shopper’s doorstep. The brand put up virtual stores in densely populated places like subways. Homeplus saw its online membership go up 76 per cent and online sales increased 130 per cent during the period.

Homeplus also rewards the first 1000 customers who log on to the Homeplus Smartphone application with US$5 or Won 5,000.

There’s another reason why retailers in Korea are tapping the e-commerce model. In 2012, the government said that South Korea’s hypermarkets and supermarkets must remain closed on every second Sunday to boost the fortunes of the country’s traditional markets and independent grocers.

E-commerce is a workaround that big retail chains use to offset the holiday sales decline.

Apart from numerous promotions, hypermarkets and supermarkets expanded the range of products sold online and simplified the purchasing process.

“The government regulation is likely to be a trigger point to accelerate the growth of internet retailing for hypermarkets in South Korea,” said Minji Kim, analyst, Euromonitor.

Though these regulations are meant to help traditional markets and independent small grocers, there has been little positive impact.

Large retailers saw value increase 3 per cent in 2012, largely due to the format's popularity among shoppers. Also, the ratio of value sales supermarkets generated in South Korea, accounted for by grocery products, jumped 85 per cent in 2012.

“This is because South Koreans generally still prefer the convenient shopping environment of hypermarkets and supermarkets,” said Minji Kim, analyst, Euromonitor. Kim attributed this to the extensive product offerings and competitive pricing at hypermarkets and supermarkets.

E-Mart is the top retailer in the space with 16.4 per cent of the market, Homeplus accounts for 14.4 per cent of business followed by Lotte at 13.3 per cent. But look for the competitive battle lines between them intensify as they take their campaigns online.