BGF Retail's results and future prospects

Date : 02 March 2018

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.

Q3 results a clearer indication of CU's performance

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.

---How we calculated the annual results 

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.

CU Buy-Self to support rising labour costs

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.

---How does CU Buy-Self work?

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.  

AI-based retail services

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.

Unstaffed stores: security and accessibility

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.

 

Sign up here for our free newsletter to get the latest updates on Asia.