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Golden Era of PB: Who Reaped the Fruits of Growth?

페이스북
커버이미지
  • 저자 이진국(李眞國)
  • 발행일 2017/08/16
  • 시리즈 번호 No. 84, eng.
원문보기
요약 □ The rise of the market for private-label brands (PB) has elevated the profits of corporate retailers but has not significantly affected, or in some cases reduced, those of subcontracting manufacturers. This is not only due to the significant cannibalization effect on national brands (NB) caused by the release of similar PBs, but also because the imbalance in the bargaining positions of retailers and manufacturers has caused operating profits to be set low while retail margins are set high. Accordingly, the time has come to prioritize the establishment of a fair trade order to promote the balanced development of the PB business. Violations of the ban on requesting management information on manufacturers must be closely examined and stronger punishment and penalties are needed for violations against the Act on Fair Transactions in Large Franchise and Retail Business. Additionally, manufacturers need to actively utilize government programs designed to support sales channels and to seek ways to advance into overseas markets.

- Private brands (PB) have exhibited a remarkable expansion based on product diversity and quality enhancement.

- This study analyzes the effect of increased PB sales on the growth of the retail and manufacturing industries and suggests policy directions for shared growth and fair market order.

- The PB market grew significantly from 3.6 trillion won in 2008 to 9.3 trillion won in 2013.

- Large discount stores gave rise to the PB market but convenience stores are currently leading the sales growth.

- Domestic retailers’ share of PB sales has grown to a similar level as global leaders and there is potential for future growth.

- The recent growth of general retail has been heavily dependent on the growth of corporate retailers.

- The increase in corporate retailers’ sales points to an increase in purchasing power.

- The increase in buyers’ power resulting from market concentration in general retail is a prerequisite to the release of PBs.

- The intensifying competition between retailers increases economic incentives to produce PBs.

- PBs are a profit-maximizing strategy created within the structure changes prompted by corporate retailer-centered market concentration and the intensifying competition between them.

- An increase in the PB sales share increases both sales and operating profit of retailer stores.

- 1,000 manufacturing suppliers to corporate retailers were interviewed and the economic effects of expanding the supply of PBs were analyzed.

- Large firms experienced a drop in total sales due to the cannibalization effect of their own products as the share of PB sales increased.

- Micro businesses experienced a weaker cannibalization effect, and PB supply helped them to secure sales channels and increase the capacity utilization rate, which increased sales.

- No significant increases in operating profit were observed in micro businesses.

- In supplying PBs, SMEs and micro businesses have a smaller operating profit ratio and larger retail margin ratio than in supplying NBs.

- The unfavorable profit sharing structure for SMEs and micro businesses is possibly incurred by the imbalance in bargaining position.

- Of 309 PB suppliers, 30 firms (9.7%) experienced unfair trade requests from retailers, and the most common is cutting the supply price (20 firms, 34%).

- The Fair Trade Commission should closely examine any violations of the ban on requesting information on production costs. And heavier punishment should be imposed on any violations of the Act on Fair Transactions in Large Franchise and Retail Business.

- SME manufacturers need to step beyond the narrow domestic market into larger PB markets abroad by actively utilizing government’s support programs.
요약 영상보고서
Private brands are booming in Korea.

Unlike national brands,
private brand or PB products are branded with the respective retailers’ brand
and are only available at their stores.

And as for market size,
the domestic PB market grew 2.5 fold from 2008 to 2013,
marking 9.3 trillion won from 3.6 trillion won
during the same period.

Then, what is spurring the rapid creation
and growth of PB products in
Korea’s retail market?

Corporate retailers have become increasingly influential
in the general retail market
as more and more consumers purchase their products.

Accordingly, their growing presence has allowed retailers
to inject themselves into the production process,
thus, creating private brands.

In addition, private brands have enabled retailers
to secure stable retail margins through product differentiation
in response to the intensifying price competition
that has cut into their profits.

So, have PBs increased profits?

The results of an empirical analysis
reveal that the shift in strategy has been a success
with stores experiencing a yearly average increase of 22.3 million won in sales
and 2.7 to 9 million won in profit
for every 1%p increase in the share of PB sales.

Then, how is it for PB manufacturers?

Again, analysis results show that,
with the exception of micro businesses,
all establishments exhibited negative sales
on an increase in the share of PB sales
as PBs products drive down the sale of NBs products.

Meanwhile, micro businesses experienced more gains in sales
as the impact from a higher capacity utilization rate
and expansion of sales channels offset the negative impact
from the decline in NB sales.

However, even micro businesses, who experienced an increase in sales,
were unable to enhance their operating profits.
This implies that even if the scale of production increases on PB sales,
it does not guarantee profit.

Then, how is the value-added created through PB sales distributed?

With cuts to advertising, marketing and distribution costs,
there is potential for increases in both the retail margins of
corporate retailers and operating profits of manufacturers.
This can be commonly seen in large enterprises.

However, in the case of SMEs and micro businesses,
operating profit declines while the retail margin increases.
In fact, the increase in the retail margin is larger than that of large enterprises.

If more effort and costs have been invested by corporate retailers in
developing PBs in partnership with SMEs and micro businesses,
the increase in the retail margin can be understood as reasonable compensation.

But, the majority of PB products are slightly modified NB products,
or the packaging has been merely replaced.
And considering that 88% of this occurs in SMEs and micro businesses,
the increase in the retail margin may be linked to the imbalance in
the bargaining position between retailers and manufacturers.

This imbalance may increase the possibility of
unfair trade practices from retailers.

Indeed, a survey found that of 309 PB suppliers,
30 had experienced such practices,
which include demands for reduced prices
and transferring the burden of promotional expenses
and packaging costs.


[Interveiw]
Despite the increases in the profits of corporate retailers due to the
expansion of the PB market, manufacturers have experienced no changes
or even declines in their profits.

This phenomenon may be owed to the imbalance in bargaining
positions. Therefore, the focus must now be shifted to establishing a fair
market order to promote the shared growth of both retailers and
manufacturers.

When investigating subcontractor trade with regards to PB manufacturers,
the government must closely examine any violations of the ban on
requesting management information.

In addition, penalties for violations of the Act on Fair Transactions in
Large Franchise and Retail Business must be reinforced to lower the
possibility of unfair trade practices.

Meanwhile, SME manufacturers should make active use of government
support programs that are linked to overseas distribution networks to
enter the rapidly expanding global PB market.

This can contribute to lowering dependence on domestic retailers and
enhance bargaining positions in the long-term.
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