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S. Korean food retail chains face losses amid intensifying price war
Concerns are growing over the financial soundness of South Korean retailers such as Lotte Mart and E-mart, as they are engaged in an intensifying price war to attract frugal consumers.
Lotte Mart saw a 10 billion won loss in the first half of this year due to higher marketing costs. E-mart's operating profit in the same period also plunged 83.1 percent year-on-year. The two companies showed a combined loss of 30 billion won in only the second quarter of this year.
Since June, major retail chains and convenience stores have been implementing "special" pricing for well-known foods including fried chicken, pizza, and coffee drinks.
The executives said that they had not intended to continue the promotional event for more than a month and had instead been offering substantial discounts for a wider range of food products in response to client requests.
On June 30, Homeplus presented Dang Dang Chicken for 6,000 won at its stores, launching the continuing price-cutting contest. People who were upset with local fried chicken franchises boosting prices owing to increased raw material prices and rising labor expenses were immediately drawn to the chicken, which was sold for a fraction of the pricing charged by restaurants. The shop has been offering Dang Dang Chicken ever since.
Other retailers jumped into the price war, including GS Retail, E-mart, and Lotte Mart. The classic Korean dish bibimbap has been made available at reduced prices at E-mart and Lotte Mart, while GS Retail's convenience shop CU has started offering a 650 won coffee that is less expensive than mineral water in this area.
Between September 1 to September 13, Homeplus' ready-made food business saw a 74 percent increase in sales year over year. During the same period, revenues at E-mart and Lotte Mart also rose by 26% and 40%, respectively.
Retailers are concerned about their profitability despite an increase in customers and sales at their locations. The initial purpose of the low prices was to draw clients while leaving almost no profit margin, if not even a loss.