Korean e-commerce growth and its problems: the threats facing F&B and FMCG brands, and how to respond

Since COVID-19, consumers have come to prefer online shopping over stores, and e-commerce has grown fast. The global e-commerce market nearly doubled in five years, from $2.9 trillion in 2018 to $5.8 trillion in 2023, and Korea’s growth stands out in particular. Last year, Korea’s online shopping transactions hit a record 242.0897 trillion won, making it the world’s fifth-largest e-commerce market. According to Statistics Korea, that’s up 5.8% from the previous year, and more than double the 2017 figure in just five years.

What drove this explosive growth? The rise of single-person households spread a pattern of buying what you need more often, which in turn gave rise to fast delivery such as early-morning delivery and delivery within one to two hours, making online shopping extremely convenient.

In this post, we look at F&B (food and beverage), FMCG (fast-moving consumer goods), health supplement and pet food brands, which have grown especially fast online, and the main threats brands can face as they build up online sales.

F&B, health supplements and pet food: booming online

According to a 2023 analysis by Lotte Members, online purchases accounted for 51.5% of Korean consumers’ spending, and that share is expected to have grown further in 2024. Now that online shopping is part of daily life, what do consumers buy most?

First, about half of all spending on furniture and books happens online, and about a third of fashion, beauty and home appliance purchases are also made online.

But the most notable change is the rise in online spending on food and beverage (F&B), health supplements and pet food. According to the Ministry of Economy and Finance, online F&B transactions reached 47.036 trillion won last year, up 14.8% year over year, showing rapid growth.

Driven by subscription delivery and expanding online channels, health supplements and pet food reached online shares of 69.8% and 78% respectively, making the shift to buying through e-commerce even clearer.

Why do consumers buy these products online? With rising prices, more people prefer online channels where they can compare prices and buy smart, and online is more economical for buying urgently needed products right away or buying in bulk.

Analysts expect F&B, FMCG, health supplement and pet food brands to make active use of online sales channels to maximize revenue. But as online sales grow, there are also threats brands need to consider. What are the main threats brands can face as they build up online channels?

The risk for brands with a high share of online sales: unauthorized sellers discounting heavily

Consumers have become more careful with their spending. According to an Opensurvey study, consumers weigh value for money (21.7%), quality (21.7%) and price (20.0%) more heavily than a year ago, and tend to prefer highly price-competitive channels such as online shopping malls (38.0%) and Daiso (29.1%) to find low prices.

One problem brands face amid these buying patterns is unauthorized sellers. Sellers who aren’t official sales channels mislead shoppers by using the brand’s ads and product images without permission, and sell at excessive discounts to rank at the top of search results. As a result, shoppers buy through unauthorized sellers instead of official ones, and brands face serious threats:

1. Lost revenue

As noted above, shoppers compare prices across marketplaces and buy at the lowest price. But when unauthorized sellers rank at the top, the brand’s official online store and official distributors lose out on price and lose sales. F&B, FMCG, health supplement and pet food brands, with their high share of online sales, lose existing customers and take a hit on new customer acquisition too.

2. Lower market share

As online markets expand, brands need to win market share online as well as offline. But if unauthorized sellers spread unchecked and gradually push out the brand’s official sales channels, overall market share can shrink. To strengthen your position online and grow over the long term, monitoring and managing gray-market sellers effectively is essential.

3. Damaged trust with official partners

Official distributors sign contracts with the brand to sell its products, so they have to meet various sales conditions, including product quality. But when unauthorized sellers sell products at absurdly low prices, official distributors are put at a competitive disadvantage and may struggle to operate. If a brand leaves the gray-market problem unaddressed, official partners may take issue with its lack of action and lose trust in it. Over the long term, that can lead to the serious outcome of losing official distribution channels altogether.

The spread of unauthorized sellers goes beyond lost revenue. It threatens a brand’s growth and position online. Preventing this requires systematic monitoring and an active response strategy.

Protecting brand growth and revenue: gray-market and price monitoring

Gray-market sellers undermine a brand’s pricing policy, hurt the credibility and visibility of official stores, and hit revenue directly. It’s a problem that goes beyond price competition to threaten the brand’s entire business.

To strengthen your competitiveness online and maximize revenue, you need to monitor two key factors quickly. Here’s a closer look.

1) Price monitoring: knowing the final consumer price

It’s important to track selling prices on online marketplaces in real time. Rather than just comparing prices, you need to identify and monitor the final consumer price, accounting for variables such as minimum order amounts, shipping fees and promotions.

Gray-market sellers in particular undermine official pricing policies by optimizing search keywords, leaving information off product pages and selling across many channels. Real-time price monitoring lets you spot shifting price trends quickly and build a strategy to respond actively.

2) Unauthorized seller monitoring: identifying them against official seller data

You need to distinguish unauthorized sellers accurately, using your official partners as the baseline. Gray-market sellers often operate in an organized way with multiple accounts and stores, so it’s important to analyze their patterns and map their networks. Online, where anyone can register as a seller, strategic monitoring that traces unauthorized distribution networks, not just individual sellers, is essential.

As online markets grow, so do unauthorized sales. For lasting growth, brands need visibility into online markets and a proactive response strategy in place.

In our next post, we’ll take an in-depth look at the gray-market problems marketplaces and other sales platforms face, and how they affect consumers. Stay tuned.

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