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This in-depth guide to South Korea explores the key trends in grocery retail and the growth strategies of the leading retailers in the country.
Get up to speed on all of the latest retailer results, the insight into what is driving growth and IGD's five big trends to watch in Asia in 2019.
South Korea’s FTC (Fair Trade Commission) approved a set of voluntary rules agreed by convenience store operators to better protect struggling franchisees.
South Korean convenience chains CU and GS25, operated by BGF Retail and GS Retail respectively, have seen a recovery in their results for the first half.
CU convenience chain recorded a net profit of KRW45.3bn (US$40.2m) from April to June, an increase of 105% from the first quarter of this year. Sales increased 12.3% to KRW1,478.5bn (US$1.3bn) compared with the first quarter. The retailer added 162 stores, ending the period with 12,897 CU stores - maintaining its position as the largest convenience chain in South Korea. It noted growth in meal replacement categories - a key and growing trend that is driven by the increase of smaller households throughout the country.
In June last year, BGF Retail decided to separate itself into a holding company, BGF, and an operating company, BGF Retail. The entities separated on 1st November 2017, therefore YoY comparisons have not been published. Click here to see how the retailer performed in 2017.
GS Retail has posted a 5.3% YoY increase in sales to KRW2,198.9bn (US$2bn), with operating profit up 4.9% to KRW55.7bn (US$49.3m) for the second quarter. This is strong turnaround in profitability after a challenging set of annual results.
The retailer's primary retail banner, GS25, saw revenue rise 4.3% to KRW1,669.7bn (US$1.5bn), with operating profit up 1.7% to KRW65.3bn (US$57.9m). It increased its convenience store network by 8.5% YoY to 12,772 stores. Growth was driven by the development of new products, with private label accounting for 36.7% of GS25’s sales (excluding alcohol and cigarettes) last month.
The performance of the GS Supermarket, the retailer's supermarket banner, was largely in line with last year. Revenue increased 2% YoY to KRW373.2bn (US$330.9m), driven by a net increase of 12 stores. It ended the second quarter with 291 supermarkets.
BGF Retail, operator of South Korean c-store chain CU, will acquire a stake in online grocery platform Hello Nature.
BGF is investing KRW30bn (US$28m) to acquire 50.1% stake in Hello Nature. The retailer will operate Hello Nature as a joint venture with SK Planet, who bought the company in 2016. Founded in 2012, Hello Nature is a premium online grocery delivery service offering products sourced directly from over 1,000 farmers.
Organic foods are increasingly popular among Korean consumers. Hello Nature provides compact portions of fresh groceries ideal for individuals and small households. The service well reflects the rise of this growing customer segment, which has been driving demand for online delivery services in the country.
Hello Nature posted sales of KRW10.6bn (US$9.9m) last year, and this has grown by an average of 121% over the last three years. BGF will take advantage of SK Planet's experience with online trading and hopes to transform Hello Nature into the leading online grocery platform within the next five years. It will also look to connect Hello Nature's delivery service to its network of over 13,000 CU stores across Korea.
Hello Nature could also venture into brick-and-mortar operations, using BGF's experience in offline retail and SK Telecom's capability in AI.
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Leading South Korean convenience store operator, CU, is set to enter Mongolia this year.
BGF Retail has signed a deal with local Mongolian retailer, Central Express, which will operate CU outlets in Mongolia. The first CU store will open in in Ulaanbaatar this year. With a young population, Mongolia offers a great opportunity for convenience store operators to thrive.
BGF Retail's CEO Park Jae-koo, said 'We will accelerate our expansion into emerging markets with high growth potential to become a global convenience store operator [...]'
Last year, CU entered Iran via a franchise deal between BGF Retail and Entekhab Investment Development Group. Together, they launched the first CU store in November, marking the first overseas expansion for the banner.
With E-Mart 24 growing at a rapid pace, and the presence of other large c-store networks such as GS25 and 7-Eleven at home, CU has turned to overseas expansion as a means to support future growth. CU has historically taken a more cautious approach to global expansion relative to its competitors. The retailer has now also taken a different direction compared with its fierce rival GS25, which selected Southeast Asia and Vietnam earlier this year as its first overseas venture.
While modern trade is still under-developed in Mongolia, large international retailers are increasingly interested in the market. Spar has partnered local retailer Max Group to open 60 stores by 2020, while E-Mart is also operating in the country.
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South Korean retailer, BGF Retail, operates the largest convenience chain in the country. We review its 2017 results and latest developments for the CU banner.
In the first nine months last year, BGF Retail posted a 13% increase in operating revenue to KRW4.22 tn, with operating profit rising 24.3% to KRW201 bn. Key categories of growth, evident across the convenience channel, are fresh food and meal solutions. Sales growth (CAGR) between 2012 and 2016 increased 14.8% YoY.
However, the retailer saw a significant decline in the fourth quarter due to a slowdown in tobacco sales growth, change in company structure and cold weather conditions. For 2017, operating revenue increased by 2.2% to KRW5.16 tn and operating profit was up 4.7% to KRW227.5 bn.
CU added over 1,500 stores in 2017, ending the fiscal year with 12,503 stores nationwide and staying ahead of its fierce rival GS25.
In June last year, BGF Retail decided to separate itself into a holding company, BGF, and an operating company, BGF Retail. The decision to demerge the entitles was to provide governance transparency, shareholder value and stronger management efficiency. The entities separated on 1st November 2017, thus the annual results above are the Group's combined figures.
Like GS25, 7-Eleven and E-Mart 24, CU is also looking at technology to support daily store operations. It is is currently testing CU Buy-Self, a mobile application that allows customers to scan products and pay on their own. The retailer plans to gradually expand the service to more stores this year. With the country’s minimum wage (hourly) increasing by 16% to KRW7,530 ($6.92) in 2018 from KRW6470 in 2017, we expect retailers to explore different options to maximise the value of staff members and consider cashier-less stores.
CU Buy-Self offers customers a quick and easy shopping solution; product scan, payment and collection of membership points, all through a mobile application. The move reflects the retailer's plan to develop next-generation payment systems. The app eliminates the need to line-up in queues to make payment and provides customers with various benefits, while driving in-store operational efficiencies. The concept can be rolled-out to existing stores with relative ease. There is no direct impact on store space, nor further significant costs to implement.
Last year, BGF Retail signed a deal with SK Telecom to provide AI assistants to support staff members at CU stores. The retailer is testing SK Telecom’s voice-powered assistant, Nugu, at CU stores to provide employees the option to ask and obtain answers to work-related queries.
As retailers continue to move towards new payment methods and unstaffed stores, profitability after initial investment is dependent on various factors. Security for both retailers and consumers is of key importance. Retailers need to install relevant measures to ensure they are not susceptible to theft. Consumers also need to have the confidence to sign-up or register to retailer endorsed payment systems or in some instances (unstaffed E-Mart 24 stores), willing to access and make payment using credit cards. There are also further obstacles for retailers to consider, such as, how they sell cigarettes and alcohol, if at all.
We've developed a single, universal methodology for calculating food and consumer goods retail data, supported by our programme of primary and secondary research. This makes Datacentre the most reliable and robust source available for data of this type.
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