Korea’s newest export: Convenience

Left: Exterior of the first CU convenience store in Tehran. Right: Iranian customers visit the CU on opening day Tuesday. [BGF RETAIL]

Facing a saturated market and intense competition at home, Korean convenience store chains are starting to look abroad for greener pastures.

BGF Retail, operator of Korea’s top convenience store chain CU, opened its first location in Tehran, the capital of Iran, on Tuesday. The company said it is the first in Korea to open a convenience store abroad.

“Iran is a strategic location connecting Asia, the Middle East and Europe,” said Hong Jung-kook, vice president of BGF Retail in charge of CU’s global operation. “It is one of the biggest markets in the Middle East with a population of 80 million. The city of Tehran, especially, has a population of 15 million and excellent city infrastructure.”

In July, BGF Retail formed a master franchise partnership with Ideh Entekhab Iranian Chain Stores, a subsidiary of Iran’s largest investment company, Entekhab Investment Development Group, in which BGF Retail will receive royalties from Entekhab for using the CU brand.

The new location includes a convenience store and cafe serving fast food. BGF Retail said its food and beverage section will be larger than that typically found in Korea.

“Based on 28 years of experience in the Korean franchise business, we plan to target Iran with localized strategy by strengthening the instant food segment and replacing the liquor corner with fast food,” the company said in a statement.

Convenience stores are uncommon in Iran, where daily shopping is still centered in the traditional bazaar, but Western-style retail outlets like shopping malls and supermarkets selling international brands are popping up in the outskirts of big cities.

“Convenience stores are still an unfamiliar retail channel in Iran,” the company said, “but BGF Retail thinks the platform will soon settle down, considering that Iranians’ daily schedules tend to extend late into the night and the fact that convenience stores provide pleasant and quick services.”

CU’s competitor in Korea, GS25, operated by GS Retail, is also vying for overseas markets. In July, the company said it would open a store in Vietnam through a joint venture with a Vietnamese investment firm, SonKim Group. Like CU, the store in Ho Chi Minh City will operate under a master franchise agreement.

Convenience stores in Korea have shown rapid growth in recent years, largely thanks to the rising number of single-person household and expansion of services available at convenience stores. The aggressive expansion has led to growing concerns that profitability will soon slow down.

According to the Korea Association of Convenience Store Industry, the number of stores reached 32,611 in 2016, a more than 26 percent jump from 26,300 in 2014.

“In a moment like this, opening overseas locations for future growth might be a good idea,” said Yang Ji-hye, an analyst at Meritz Securities.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]