By Kang Hyun-kyung
Lotte Mart, a large discount store chain with 85 branches nationwide, stopped selling its low-priced fried chicken from last Thursday after failing to weather mounting pressure from competing fried chicken franchises and smaller mom-and- pop stores.
Lotte was labeled a self-serving, greedy business trying to gain more profits at the expense of nearby fried chicken stores.
Political pressure also came their way too. Chung Jin-suk, senior presidential secretary for political affairs, first criticized Lotte. Legislators soon joined in.
Now consumers are losing out as they have to pay up to three times more for a bucket of fried chicken after Lotte dropped its fried chicken brand, of which price tag was 5,000 won, less than $5. President Lee Myung-bak noted it would be a loss for consumers.
Oddly enough, consumer watchdogs remained silent during the nine-day “chicken war.”
Consumer groups didn’t issue a single statement. They didn’t take any collective action, either. They were quiet over the nine days while the Lotte chicken went on sale.
It is rare for consumer groups sit on the fence and do-nothing during such battling incidents. Thus, the passive stance inevitably prompted criticism that they were not acting on behalf of consumers as they should be doing.
Kim Soon-bok, director of the Korean Federation of Housewives Clubs (KFHC), one of the three largest consumer groups here, said the Lotte chicken case was a dilemma for them.
“Inside the KFHC, our activists had heated debates over the fried chicken case. There were two schools of thought as to whether we should support Lotte to help it keep selling the fried chicken for the benefit of consumers,” Kim told The Korea Times over the phone.
In the short run, Kim believes that the consumers would be better off if the low-priced chicken is kept on sale as people pay less.
“But our activists had ‘monopoly woes’ over the Lotte chicken pricing. In the case Lotte dominated the fried chicken market as consumers sweepingly prefer, we believe some day the discount giant would be able to set market prices at its will and consumers would have to pay whatever Lotte sets as the price,” Kim said.
“If this happened, consumers would have to pay a lot more than they do now.”
The possible long-term loss in terms of consumer welfare could outweigh short-term interests, the activist noted.
The majority of consumer groups were convinced by the long-term loss theory, leading the Korea National Council of Consumer Organizations, a federation of consumer groups, to maintain the do-nothing stance over the Lotte chicken controversy.
Despite the justification, consumer groups cannot be immune from criticism that they didn’t take appropriate measures to better protect their clients.
An economist working with a state-run think tank told The Korea Times that consumers’ interests were not properly addressed in the chicken pricing dispute.
Asking not to be named for he was not authorized to speak on the issue as a fellow working with a state-run think tank, he said it was regrettable that consumers were not part of the debate.
“In a capitalist society, firms compete in the market by releasing quality products with competitive price tags. Consumers make a decision by purchasing their preferred items. This is how the capitalist system works,” he said.
Given that Lotte’s decision to halt the low-priced fried chicken would limit consumers’ choices, he added that they should have been part of the debate and their voices had to be heard.
Unfortunately, this didn’t happen.
Kim Yong-ki, senior fellow at the Samsung Economic Research Institute (SERI), said the chicken debate took the form of contradicting interests between Lotte and franchise stores against the backdrop of the sharp growth of the self-employed businesses in the nation.
Kim said the trend was striking in the wake of the Asian financial crisis in 1997.
Massive job cuts followed the regional economic malaise that hit several Asian nations.
“The self-employed population grew sharply as many of those who lost jobs explored start-ups, including fried chicken franchises,” he said.
“In a democratic society, the largeness in number means growing political clout, especially during the campaign season (because they can make their voices heard in the policy making process by voting for or against certain politicians).”
Nowadays, three out of 10 South Koreans are self-employed.
The ratio of self-employed workers in Korea stands the fourth highest among the 30 members of the Organization for Economic Development and Cooperation.
It stands at 40 percent in Turkey, 35.5 percent in Greece and 33.8 percent in Luxemburg.
When their business interests are hurt, franchise owners or self-employed people are quick to stage protests, demanding lawmakers or politicians do their roles to help their interests.
Compared with franchise owners or self-employed people who are tightly organized based on shared economic interests, consumers appeared to be loosely organized.
Consumer watchdogs represent their voices, but their bond with activists is not as tight as that of self-employed workers or franchise owners who share business interests.
This, analysts said, makes it difficult for consumers to express their discontent when their representative consumer groups, remain silent over pending issues.
Lotte Mart launched the cheap fried chicken brand on Dec. 7 as a marketing bait to attract more customers to their stores.
The campaign was reportedly affected by its rival E-Mart’s success after it launched the low-priced E-Mart pizza.
E-Mart employed a strategy where shoppers first had to wait about an hour to receive it after ordering.
Consumers order the pizza after they arrive at the store, and look around to kill time. As they wait for the pizza, they usually spend more in the store than they initially planned.
A 43-year old housewife, who asked to be identified only by her surname Kwon, said she couldn’t resist the pizza because the aroma was the first thing that she noticed when she entered the store.
“After ordering one, I usually go shopping. Sometimes I stay longer than intended. Looking around, it’s hard not to buy anything. I sometimes spent money on products that I didn’t plan to buy,” she said.
After Lotte launched the budget fried chicken brand, hundreds of people waited in line in 82 Lotte Mart stores nationwide to purchase the cheap chicken from early in the morning.
The popularity of Lotte chicken came at a cost to nearby fried chicken franchise stores’ profits, sparking a feud between the conglomerate and the local rival businesses.
They staged intermittent protests against the large discount stores.
They accused Lotte of putting their business at risk, calling on the discount giant to stop its venture.
The Korea Franchise Association prepared to file a lawsuit against Lotte over the cheap fried chicken, alleging that the discount giant sold it “below production cost” and this impaired fair competition.
Upon request, the Fair Trade Commission is set to investigate the case.
Days after the fury erupted, Chung Jin-suk, senior presidential secretary joined the anti-Lotte chicken move by siding with fried chicken franchises.
In a post on Twitter, Chung said Lotte is amoral in selling the chickens below cost in order to steal customers from small chicken stores.
A day after his remarks, Lotte announced it would stop selling the fried chicken so cheaply.