Retail industry faces price wars

[Anchor]

In the midst of an economic downturn, the retail industry, including large supermarkets, is engaged in fierce price competition.

Nowadays, even products with fluctuating costs are priced first, and then the products are made to match the set price.

Reporter Ryu Ran has the details.

[Report]

In the ready-to-eat food section of a large supermarket.

Shopping carts are full, and customers are holding multiple items in their hands.

[Kim Soo-jin/Seongdong-gu, Seoul: "Just taking two is enough for a meal for my child. It's under 10,000 won. Honestly, it's not easy to find such prices anywhere these days."]

Various ready-to-eat food items that should be sold for around 8,000 won are all priced at 3,990 won here.

[Jo Jun-hee/Head of E-Land Distribution PR Team: "We set the psychological price resistance of consumers at 4,000 won, and we adjusted the cost and margin accordingly."]

This is called 'price reverse engineering.'

Typically, prices are determined by adding a profit margin to the cost of the product. However, in this case, the price is set first, and then the cost and margin are adjusted to ensure it does not exceed the set price.

Consumer response has been swift.

Since the introduction of this method, the average purchase quantity of ready-to-eat food at the supermarket has doubled to 2.4 items per person.

Convenience stores are also competing for the 'lowest price in the industry' using price reverse engineering.

A capsule coffee priced at 290 won, just 10 won less than the previous lowest price, saw a 22% increase in sales within three weeks of its launch.

The industry’s lowest-priced kimbap at 1,900 won experienced a 50% sales increase in just ten days.

Price reverse engineering has primarily been applied to consumer goods like household items.

As wallets tighten due to the worsening economy, supermarkets and convenience stores, which have a high proportion of food sales, have begun to adopt this method for food items as well.

The key issue now is sustainability.

[Kim Joo-young/Professor at Sogang University Business School: "We need to see if we can maintain quality and ensure that farmers supplying agricultural and marine products are not adversely affected."]

Given that food has significant cost and quality volatility, it remains to be seen whether the lowest price reverse engineering can be sustained.

This is Ryu Ran from KBS News.