1000-Won Daiso Cosmetics Used by Mothers... Eyeing Olive Young's Market Share [Why&Next]

Challenge to CJ Olive Young in the Beauty Market
Accelerating Expansion of Cosmetic Brands Entering Stores
Related Sales This Year Also Up 217% Year-on-Year

Domestic largest cosmetics company Amorepacific and LG Household & Health Care have also been embraced. Following the 'Riddle Shot' and the 'Affordable Chanel Balm,' Daiso, a cost-effective daily necessities retailer, has recently launched beauty products that have caused a sell-out frenzy, rapidly standing out in the cosmetics distribution market. The number of brands entering the store and the growth rate of beauty sales are steep. Starting as a Cheonnyang shop during the 1997 foreign exchange crisis and growing into the largest daily necessities store in Korea, attention is focused on whether Daiso will shake up the offline cosmetics distribution market dominated by CJ Olive Young.

According to the distribution industry on the 30th, Daiso currently hosts 47 cosmetics brands. Having introduced 19 brands last year, Daiso is expanding its brand lineup even faster this year. As of July this year, 23 new brands have been added, exceeding the total number of brands from last year. The number of products reaches 346.

Daiso's 'Storm Growth' Led by Makeup Power

Since 2021, Daiso has focused on the cosmetics category for the past three years. In the early stages of the business, it introduced skincare beauty products such as mask packs, but later expanded its lineup from basic skincare products to color cosmetics like lipsticks, eyeshadows, and cushions. As a result, sales in the beauty category have surged dramatically. After recording a sales growth rate in the 50% range in 2021 and 2022, it jumped 85% last year and soared 217% this year.

The strength of Daiso cosmetics lies in their affordable prices, ranging from a minimum of 500 won to a maximum of 5,000 won. This has established Daiso as a cosmetics shopping destination for consumers with thinner wallets due to the economic downturn. Coupled with quality, consumer response has been explosive. VT's 'Riddle Shot,' which sparked a buying frenzy, reduced the volume of products sold in the market (around 30,000 won) to one-tenth the price (3,000 won), earning a reputation as a 'sold-out item' among consumers. Son Aekbak's 'Arty Spread Color Balm' also showed color payoff similar to Chanel's 'Lip & Cheek Balm' (63,000 won), gaining popularity as an 'Affordable Chanel.'

The beauty category, including cosmetics, accounts for just over 10% of Daiso's total sales. However, it is widely expected that the growth rate will become more pronounced with cost-effective products like Riddle Shot and Arty Spread Color Balm leading the way. Daiso is also reportedly planning to introduce more brands to offer affordable and high-quality products in the future. The recent addition of major cosmetics companies' products, such as Amorepacific's 'Mamonde' and LG Household & Health Care's 'CNP,' is interpreted as part of this strategy.

Cost-Effective Cosmetics, Strategy to Expand Customer Base

The reason Daiso expanded its cosmetics business is that it can secure growth momentum by attracting new customers amid the recent global K-beauty boom. A Daiso official said, "Cosmetics have low manufacturing costs, such as raw material prices, so the business yields high margins, but ultimately, the focus is on increasing customer inflow in offline stores and expanding the main customer base from the existing 20s to 40s age group to teenagers."

Since opening its first store in Cheonho-dong, Seoul, in 1997, Daiso has grown by targeting the 40s to 60s age group with 1,000-won industrial products. At that time, the Cheonnyang department stores, which sprang up like mushrooms due to the foreign exchange crisis and the difficult household economy, gained popularity. Daiso survived the competition by leveraging its product sourcing capabilities for exports to Japan.

Entering the 2010s, Daiso diversified its products into daily necessities, food and beverages, and more. By adding pet products and leisure goods, it expanded its customer base to the 20s and 30s, achieving a second growth phase. Recently, targeting Generation Z, it has released many trendy products such as phone decoration sets and keyrings, earning a reputation as a 'playground' for the MZ generation (Millennials + Generation Z), beyond a simple daily necessities store.

The expansion of the customer base led to external growth. Daiso achieved annual sales of 1 trillion won in 2015, surpassed 2 trillion won in 2019, and broke through the 3 trillion won barrier last year, four years later. Especially, annual sales grew by 167.1 billion won between 2019 and 2020, but between 2022 and 2023, annual sales increased by about three times that amount, reaching 484.3 billion won. This year, with the added growth of the beauty business including cosmetics, it is expected to surpass 4 trillion won in annual sales.

Clash with Olive Young, the 'Veteran' of the Beauty Market

As Daiso enters the cosmetics business, competition with Olive Young, the largest offline cosmetics channel, is inevitable. Olive Young accounts for more than 90% of the domestic health & beauty (H&B) market, including cosmetics. As Olive Young's dominance grew, GS Retail's Lalavla withdrew in November 2022, and Lotte Shopping's LOHB's closed all of its approximately 100 street stores. In March, even the global beauty select shop Sephora exited the Korean market.

However, since Daiso, like Olive Young, is an offline-based distribution channel, it is expected to have growth potential by establishing contact points with customers through its nationwide stores. As of last year, Daiso's number of stores exceeded 1,500, expanding its size. According to the Fair Trade Commission's franchise business information system, Daiso operated 1,519 stores nationwide last year. The number of stores increased rapidly from 1,339 in 2020 to 1,390 in 2021 and 1,442 in 2022. This expansion speed is faster than Olive Young's. Olive Young's number of stores increased from 1,259 in 2020 to 1,354 in the first half of this year, growing by about 100 stores in three years.

However, the prevailing view is that Daiso is still insufficient to surpass CJ Olive Young's dominance. First, there is a significant gap in scale. Although Daiso has recently greatly expanded the number of brands entering its stores, Olive Young already hosted about 2,400 brands as of last year. The number of products sold reaches about 20,000. In terms of sales, Olive Young sold 3.8611 trillion won worth of beauty products, including cosmetics, last year, while Daiso's cosmetics sales are estimated to be around 300 billion won.

Is Daiso Considering Raising Cosmetics Prices?

Some speculate that Daiso may raise prices to improve profitability in the beauty category. It is expected to diversify products by introducing brand products priced above the current maximum of 5,000 won. However, there are no signs of changes in Daiso's pricing policy at present. An industry insider said, "If manufacturers raise prices, they can introduce functional products, so the number of products available for sale increases," but added, "Daiso still maintains the policy of supplying products priced around 5,000 won without any talk of price increases."

There is also analysis that Daiso might introduce a premium uniform price shop line ('Standard Product'), like Japan's Daiso. However, Daiso draws a clear line. A Daiso official said, "In Japan, there are stores that sell high-priced products separately, but we have no such plans," and added, "We will maintain the 5,000 won uniform price policy in the future as well."

CJ Olive Young is a veteran in the domestic health and beauty (H&B) market, occupying more than 90% of the market share, including cosmetics. The photo shows mostly foreign customers selecting cosmetics at the Olive Young Myeongdong store. Photo by Younghan Heo younghan@

Daiso is expecting synergy by intensifying its small-quantity, low-priced cosmetics business based on the offline market. Moreover, if its capabilities in the e-commerce market, which has recently received focused investment, get on track, the synergy effect is expected to amplify. Earlier, in December last year, Daiso integrated and reorganized Daiso Mall and Shop Daiso to target the e-commerce market and launched nationwide next-day delivery service. In July, it also began construction of the 'Sejong Online Center' for its online mall with an investment of 400 billion won in Sejong City.

While Daiso is targeting the market with cost-effectiveness based on offline stores, CJ Olive Young is betting on a premium strategy based on an omnichannel approach (online and offline). Earlier, CJ Olive Young launched 'Lux Edit,' an online mall premium cosmetics specialty store, in July last year. In April this year, it added LG Household & Health Care's luxury cosmetics brand 'The History of Whoo,' and in May, Amorepacific's premium brand 'Sulwhasoo' to its online mall, strengthening its premium lineup.