South Korea's shift online benefits delivery services, and trusted brands

NIELSEN MARKET SNAPSHOT: SOUTH KOREA

During the first quarter of 2020 most of the Asian markets were hit by the surge of the pandemic crisis and subsequent economic fall-outs especially in exports. South Korea was swift to implement a containment strategy for the coronavirus spread and managed to maintain economic activities unlike many markets in Asia. In Q4 2019 South Korea’s GDP increased by 1.3%, whereas the recent annual GDP numbers[1] show a decline of 1.3% during the first quarter of 2020, which is a relatively sober decline amongst other Asian markets.

Consumers preferred to stay at home and therefore altered their shopping behaviour for essential supplies considerably causing disruptions in South Korea’s FMCG landscape. The offline store sales declined by -2.3% MAT[2] in Q1 2020 while e-commerce grew by almost 20% in value during the same period, versus Q1 2019. Despite continued decline of offline, neighborhood stores such as CVS (convenience stores sales increased by 1% MAT Q1 2020) and traditional channels (3.3% MAT Q1 2020) continued to show growth.

There has been a rise in online purchasing of packaged FMCG as well as fresh products and groceries from all generations including consumers who are in the age 50-60s opting for e-commerce to avoid physical contact. Notably, the overall online and mobile shopping increased by 12.5% and 18.4%[3] respectively in South Korea in April 2020, versus April 2019 signalling a higher level of payments being made via credit cards, mobile transactions and internet banking.

One of the biggest impacts of the COVID-19 pandemic is on the lifestyles and food behaviours of Asian consumers given the pre-covid realm of spending on outdoor activities such as eating at restaurants and cafes or alternatives like take-outs and deliveries. In a survey[4] conducted by Nielsen, 62% South Korean consumers said they will re-prioritise eating at home and 42% consumers said they are choosing the food delivery option more often than before the covid-19 event as consumers’ paid more attention to health and safety. As a result, home meal replacement (HMR) items with relatively low involvement in cooking increased by 11.4%, whereas stock food items increased by 7.5%, and food items with high involvement increased by 9%[5].

South Korean consumers’ need to sterilize air or clothing that touched the outside increased as a result of covid-19 event. According to data from Nielsen, the share of air purifier and air washer product line in the consumer electronics market increased from 32.8% to 39.6% in February 2020. Clothing management and cleanliness segment rose from 9.7% to 16.6% in the same period. In a survey conducted by Nielsen, 41% of consumers said they will purchase air purifiers and air washers more than before the covid-19 event.

Another key shift observed in the FMCG landscape was consumers’ trust in known brands while evaluating the product variety available online and pricing options. The share of top three brands by major category rose 19.3% points, toothpaste 4.5% points, and body soaps 1.8% points in the month of February.

During the initial phase of the virus spread consumers stock-piled essentials such as sanitizers and masks and further added coffee (instant, capsule, roast and ground), instant noodles, dumplings, curry powder, packaged kimchi in their essential food repertoires. Nielsen retail data shows increase in sales during weeks 1 and 8 in 2020 versus previous year for categories such as biscuits and cakes (up 16.6%), snacks (up 9.3%), alcoholic beverages (10.4%), soju (1.6%), and beer (0.3%). Capsule coffee recorded an increase of 8.7% sales[6] (between weeks 11 to 13 versus weeks 8 and 10), followed by a 5.5% rise in sale of coffee beans, whereas RTD (ready-to-drink) coffee and tea increased by 7.8% and 7% respectively, in the same period. On the other hand, sales of Cocktail beer increased by 57.3% (YTD W13 VS. YA).

On the retail front, online exploration through social media has led to a rising trend in premium product purchasing through e-commerce and speciality malls for their personal preference for categories such as food and cosmetics. The concept driven communication has become paramount to further increase adoption of the new e-commerce speciality markets. In terms of online media consumption during this year’s first quarter pandemic phase in South Korea, online reading increased by 78%, online video streaming increased by 76%, social media activity increased by 73%, online music/radio listening increased by 66%, and online gaming increased by 56%.[7]

When it comes to consumers’ preferences for groceries and FMCG essentials over the course of the pandemic, the common theme emerging from FMCG shopping behaviour is that of protection and safety especially in the physical retail environment and in product categories such as fresh produce or non-packaged goods. Consumers have started to ponder about associated risks of being exposed to the virus and therefore seeking verifiable safety standards used by manufacturers and retailers.

In an earlier survey conducted by Nielsen[8], 49% of consumers said they were highly willing to trade up in price for high quality and safety standards in products. Given the pandemic situation at play, this will be a heightened consideration for many consumers who might trade quality over value in an effort to minimize risk to their health. In the emerging context of new normal from the coronavirus pandemic, the FMCG industry can succeed through effective communication on hygiene and safety assurance and building an ability to guarantee the quality and safety standard in their products and logistics chain to the consumers.