Changing lifestyles drive convenience profits

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Changing lifestyles drive convenience profits

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Fifteen years ago, Lotte Group Chairman Shin Dong-bin forecast in his book that, “time will soon come when we can take home fine cuisines at an affordable price, anytime, anywhere.”

He predicted more housewives will lack cooking skills, people will look for different global dishes and the role of department stores will break down due to the distribution of retail power through diversified outlets.

His statements in “A Guide to the Successful Franchise Business” have turned out to be true as the nation’s retail industry today looks at convenience stores to combat stagnant sales performance. The 2001 forecast was based on Shin’s observation of rapid growth in convenience stores in Japan due to an increase in the number of single households and an aging population.

Convenience store revenue is growing at a rapid pace, hitting 8 percent annual growth, a stark contrast to falling sales of other distribution channels such as department stores and discount hypermarket chains.

Industry insiders forecast the sales revenue of department stores would decline below the 28 trillion won level, putting an end to its four-year rally above the 29 trillion won mark. Discount hypermarkets are in the same situation. “It looks like our revenue has increased because new stores have opened up, but actual revenue by each store has declined,” said a board member from a hypermarket chain.

Major reasons for such an uplift in convenience store sales are a rise in the number of single households and an aging society. Among 18.71 million households in the country last year, 5.06 million or 27 percent were single households.

The Korea Chamber of Commerce & Industry said single or two-member households last year accounted for 57.9 percent in the non-metropolitan area and 49.2 percent in the metropolitan area. In 2030, the figure is expected to grow to 70.5 percent for the non-metropolitan area and 60.5 percent for the metropolitan area. “Single or two-member households don’t shop for food ingredients [for cooking] and rather purchase precooked convenience foods,” said Park Hyeong-kon, from Ministop, a convenience store chain. “The aging society is also responsible for the growth of convenience stores since people prefer to purchase commodities from a nearby store.”

A change in lifestyle has also boosted sales of convenience store products. The popularity of the lunch box gave birth to a so-called pyeondojok, a name created by taking the first syllables of a Korean expression which refers to “convenience store lunch box lovers.” Renowned lunch box sets from different convenience store chains have starred celebrities including Kim Hye-ja for the MOM lunch box provided by GS25, popular chef Baek Jong-won for CU, Edward Kwon for Ministop and singer and actress Hyeri for 7-Eleven. Overall lunch boxes earned positive remarks from customers due to its cost-effectiveness. About 50 million lunch boxes were sold last year.

Japan, one of the leading countries in the convenience store industry, has transformed stores into a multi-use centers where it also functions as a cafe and community service center. The change can also be seen in some convenience stores in Korea where the premises share services provided by restaurants and cafes.

When JoongAng Ilbo, an affiliate of Korea JoongAng Daily, visited the 7-Eleven Chinese Embassy branch, near Myeong-dong, central Seoul on Thursday, the store was filled with Chinese tourists shopping and also eating ready-made meals.

The venue is like a rest area for Chinese visitors to the city. Unlike general convenience stores, the shop operates in a two story building with a total floor space of 198 square meters (2,131 square feet). The first floor is a regular shopping area while the second floor is arranged as a cafe that sells lunch boxes and eomuk (Korean fish cakes).

“Convenience stores are common in Japan, but it was interesting that the Korean stores sell ‘Busan eomuk,’ which I know is quite famous in Korea,” said a 63-year-old Singaporean visitor who visited the store. The cafe-type stores are currently operating in Myeong-dong and Yeoksam-dong, southern Seoul.

Brewed coffee, or wondu coffee in Korean, is another strategic sales product. 7-Eleven had a head-start selling wondu coffee, but now most stores offer brewed coffee.

“In a year, about 1.1 billion cups of coffee priced at 100 yen ($0.85) were sold from Japanese convenience stores,” said Choi Min-ho of 7-Eleven. “Convenience stores will now begin fierce competition with cafes in Korea as well.” Starbucks, the best selling coffee chain in Korea sold 30.7 million cups of coffee in 2013.

Convenience stores are also becoming more versatile. Electronic equipment such as automated teller machine (ATM) and unmanned parcel delivery systems are installed in stores and new products such as mobile phone sales, insurance subscriptions and subway ticket sales are offered.

CU stores will begin a cooperative service with social commerce company, Ticket Monster, from February. Customers can find their deliveries from nearby convenience stores of CU brand. Since convenience stores are open 24 hours, customers can drop by the store any time. GS25, offers the cheapest smartphone being sold in the country, Huawei’s Y6, sold at price near zero considering subsidies provided by the telecommunication service provider, LG U+. Its regular price is 154,000 won.

Delivery, unmanned service and logistics system have been identified as major areas the industry is aiming to transform to better meet future needs. Due to the growing aging population, home delivery has become a priority. CU is planning to begin its home delivery service for online orders starting with 1,000 stores in the metropolitan area within this year. GS25 is also preparing a delivery service for orders taken by phone.

Remote store management via Internet of Things technology is another project by GS25, to control the temperature of refrigerators and lighting of the store through smartphones or a server at the headquarters.


BY LEE HYUN-TAEK [kim.jeehee@joongang.co.kr]

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