[Why&Next] Flexing at Daiso... The Secret Behind Ultra-Low-Priced Cosmetics

Cosmetics Category Sales Up 150% Last Year
Most Cosmetic Prices Driven Up by Advertising and Marketing Costs
Daiso Maintains Low Prices by Minimizing Intermediate Distribution Costs

Teenager Ms. Lee, who is usually very interested in cosmetics, used the New Year's holiday pocket money she received from relatives to go on a 'shopping spree' at Daiso. She purchased cosmetics that had gone viral on social media (SNS) for 30,000 won. Ms. Lee said, "The advantage is that you can buy products that normally cost 20,000 to 30,000 won at Olive Young for less than 10,000 won," adding, "I used to distrust Daiso cosmetics and didn’t buy them, but now that there are affordable products with decent quality, I think I will buy them often."

As the cosmetic consumption trend shifts from 'premium' to 'cost-effectiveness (performance relative to price),' the biggest beneficiary has been Asung Daiso. Daiso cosmetics, which were once shunned by consumers, are now gaining popularity due to word of mouth about their excellent quality relative to price.

On the 2nd, cosmetics from LG Household & Health Care and road shop brands such as Missha, A'PIEU, and Etude, which have raised or announced price increases for the New Year, are displayed at a cosmetics store in Seoul. Photo by Kang Jin-hyung

According to industry sources on the 3rd, Asung Daiso's sales increased by 54.7%, from 2.2362 trillion won in 2019 to 3.4604 trillion won last year. Among this, the sales of the cosmetics category (basic and color cosmetics) grew by 150% year-on-year based on cumulative figures from January to November last year. Compared to an 85% increase from 2022 to 2023 and about 50% from 2021 to 2022, the recent sales growth is steep. A Daiso official stated, "We do not disclose the proportion of cosmetics sales within total sales separately, but it is true that the sales share of the cosmetics category has recently increased."

Last month, the vegan beauty brand 'Dinto' collaborated with Daiso to launch the color cosmetics line ‘Prelude Dinto,’ which sold out immediately upon release. It attracted attention even before launch due to word of mouth on SNS and online communities. The Mimmo by Mamonde product launched by Amorepacific in September last year surpassed cumulative sales of one million units within just four months of being stocked. A total of 59 brands are available at Daiso, including cosmetics from LG Household & Health Care, Amorepacific, and Aekyung Industrial.

The strength of Daiso cosmetics lies in their 'affordable price.' Daiso follows a uniform pricing policy, setting all product prices at one of six fixed points: 500 won, 1,000 won, 1,500 won, 2,000 won, 3,000 won, or 5,000 won. Even the most expensive cosmetics do not exceed 5,000 won. Mr. Kim (30) said, "Daiso cosmetics are so well-made and cheap that buying them elsewhere feels like a loss," adding, "Using Daiso cosmetics makes me finally feel that prices are reasonable."

▲This is a receipt for cosmetics purchased at a Daiso store in Gyeonggi-do. The total price for all 10 products is under 30,000 won, making it very affordable. Some products from certain brands that gained popularity on social media were sold out.

Minimizing Advertising and Marketing Costs... The Secret to Low Prices

The reason Daiso can sell ultra-low-priced cosmetics is attributed to 'minimizing marketing and distribution costs.' Large cosmetic brands spend heavily on advertising and hiring models, but Daiso does not conduct large-scale marketing, which reduces intermediate distribution costs. A Daiso official explained, "To provide products at uniform prices, we minimize distribution margins arising from advertising and marketing."

Most branded cosmetics sold at Daiso are produced by Original Design Manufacturer (ODM) companies. Domestic ODM firms like Kolmar Korea and Cosmax handle planning, development, and production upon receiving product development requests from brand companies. The produced products are delivered to the brand companies, which then sell them. Even products made by the same manufacturer can have different prices depending on advertising and marketing costs. Cosmetics brands sold at Daiso minimize costs incurred during intermediate distribution to offer low prices.

In fact, according to Cosmax’s quarterly report from last September, the prices of key cosmetic raw materials such as ethanol and glycerin were 1,700 won and 1,230 won respectively, not exceeding 2,000 won per quarter last year. Also, the average price of basic cosmetic products was 2,236 won, and color cosmetics averaged 2,723 won per quarter last year. Most of the high prices of cosmetics can be attributed to costs incurred during intermediate distribution.

Professor Eunhee Lee of Inha University’s Consumer Studies Department explained, "Most of the cosmetic price is formed high due to advertising and marketing costs," adding, "However, today’s consumers often decide based on YouTubers or SNS reactions rather than advertisements, so the influence of advertising and promotion has significantly decreased compared to the past."

The strategy of low margin and high volume also helps maintain affordable cosmetic prices. As of 2023, there are 1,519 Daiso stores nationwide, creating an environment where bulk purchasing lowers prices. A Daiso official said, "Maintaining uniform prices in a high inflation era is not easy, so along with the low margin, high volume strategy, we minimize unnecessary design and packaging to focus solely on the product itself."

The number of people seeking affordable Daiso cosmetics is expected to increase further in the high inflation era. In fact, besides cosmetics, sales of clothing items at Daiso are also showing a strong upward trend. Sales of 'easywear' categories such as fleece, padded vests, sweatshirts, and hoodies increased by 267% year-on-year as of October last year. From October to November, the growth rate was an impressive 557% year-on-year.

Professor Lee said, "The trustworthiness of cosmetics displayed at Daiso has increased, and it has been proven that sales can rise through SNS and online channels even without advertising or promotion," adding, "In the high inflation era, the number of people purchasing affordable Daiso cosmetics is expected to continue growing."