Retailers 'Exaggerate' Quality of In-House Brands

There was a reason why the toilet paper seemed so thin, the ham didn't taste porky enough and the milk was slightly bland. It turns out that the proud and praised in-house labels of local retailers have been delivering low quality, just like their low price.

Consumers should've known already through first-hand experience, but it took the recent confessions of several manufacturers to snap cash-short shoppers out of the cheaper-is-better mode.

Maeil Dairy and Binggrae, two of the country's largest milk producers, candidly told local media earlier this month that the products they specifically make for Shinsegae E-mart, South Korea's No. 1 discount retail chain, are clearly different in quality from their own brands.

Maeil and Binggrae are the main manufacturers of E-mart's private label (PL) milk goods.

Binggrae, best-known for its popular banana-flavored milk, even said that it strategically _ but not too obviously ― differentiates the content and flavor to educate consumers that the E-mart-branded milk isn't as good as Binggrae's signature product.

"We can't put our customer loyalty on the line to cater to giant retailers," said a company official, despite the fact that the supermarket chains are manufacturers' biggest and most reliable distribution channel.

Considering that store brands cost 20 to 30 percent less than national brands, the difference should almost be expected. But consumers are thrown off because retailers like E-mart, which led the PL boom in the local market, have consistently promised that the economical private brands are "equal in everything, but just cheaper."

"Despite the recent happening, we still stand by our original principle," said E-mart spokesman Lee Nam-gon.

Hypermarket chains' formula claims that their simple manufacturer-to-store distribution chain and minimal marketing costs allow product offerings at a fraction of market prices, without sacrificing any of the ingredients.

Welcoming the friendly price, consumers bought what top retailers E-mart, Homeplus and Lotte Mart said, and the commitment delivered directly to promising sales results.

Last year, revenue from E-mart's store-brand labels accounted for 19 percent of total sales, while Homeplus and Lotte Mart saw 25 percent and 17 percent of sales generated, respectively, from their own brands.

All three retailers sell thousands of PL items, ranging from staple goods like milk and rice to soda, Kleenex and laundry detergent.

With discounters in a race to beef up their stock of store labels faster, the business was supposed to get better this year in the face of a worsening economic downturn.

But the bad news is that the latest milk incident is putting the quality of all private brands in doubt.

"Consumers have already started giving these cheap products a second thought," said Lee Jung-soo, a spokeswoman of the Korea Consumer Agency (KCA). "It's one thing to know exactly what you're paying for, but it's another thing to be fooled into buying something without knowing the real contents."

E-mart last week pulled the milk products that were questioned from its shelves to "investigate their quality," but discontent over sub-par goods is quickly spreading and more consumer products are under question.

Detergents, shampoos and even snacks were found to have been made with Chinese raw materials, or below-grade ingredients. LG House & Health Care, shampoo-maker Aekyung and snack manufacturer Kirin are among manufacturers that have hinted at the practice.

A study done by the KCA last year showed that the percentage of main ingredients in certain private-brand products was lower than that of those sold under manufacturers' own labels.

Industry insiders, however, say that companies have no choice but to churn out half-way decent goods due to price pressure from retailers.

"Retailers set a price and manufacturers have to work around it," said an industry source, adding that if they fail to do so, companies could face a temporary or permanent sales suspension at the grocery chains' nationwide outlets as punishment.

Lee of E-mart, however, fended off these claims, saying that retailers and manufacturers are in a partnership to offer consumers the best products at the best price.

Meanwhile, the Fair Trade Commission is considering launching an investigation into the relationship between retailers and manufacturers to see whether there has been unfair pressure involved.