Korean convenience stores threaten Japanese rivals’ empire

South Korea’s convenience store chains aim to seize the throne from Japanese rivals in Asia by utilizing K-pop and food as they look for new growth abroad.

GS Retail Co.’s convenience store unit GS25, BGF Retail Co.’s CU and E-Mart Inc.'s Emart24 Inc. are slated to open more than 300 new shops overseas in the second half, according to industry sources in Seoul on Friday. CU plans to make inroads into Kazakhstan in the first half of 2024 and use the country as a base for expansion in Central Asia.

The three leading Korean convenience store operators currently manage 922 stores in Vietnam, Malaysia, Mongolia and Singapore.

They are swiftly expanding their presence in overseas markets through Korean culture and food rather than localization, the method employed by Japanese and US convenience store operators in foreign markets.

GS25 sells Korean-style fried chicken in Mongolia to tap into the growing popularity of the dish there, while CU joined hands with YG Entertainment Inc., the label behind K-pop sensation Blackpink, to apply its intellectual property to the convenience store business.

At one of Emart24's Singaporean stores, more than 60% of products stocked were Korean food items such as gimbab and private brand items. The shop also operates machines that allow customers to cook their own ramen.

Such moves are expected to propel their success in the global market and help them avoid the struggles that other retailers such as department stores and hypermarket operators faced in overseas markets, industry sources said.

“Given the increased saturation of the domestic convenience store sector, they need new markets for growth,” said one source. “They will not follow the precedent of hypermarkets; they will succeed.”

JAPANESE COMPETITORS’ DEFENSE

The aggressive expansion by the Korean convenience store players in Asia has dented their Japanese rivals.

Japan's convenience store chains sense a growing threat from GS25, which aggressively opens outlets to quickly establish a brand, one Japanese media reported in May.

GS25, which entered Vietnam in 2018, currently runs 213 shops in the country, ranking second after US-based Circle K Store Inc. with 423 outlets.

To cope with such growth, Japan’s Ministop unveiled a plan to increase the number of stores in Vietnam to 200 from its current 151. 7-Eleven Inc., the world’s top convenience store operator owned by Japan’s Seven & I Holdings Co., runs about 80 outlets there.

BETTER POSITIONED

Korean retailers, particularly department stores and hypermarket operators, have been struggling overseas. Department stores and large discount stores depend on large procurements from local suppliers.

Convenience stores, however, do not face such issues as shop sizes are small and target items are different. All three Korean operators — GS25, CU and Emart24 — have signed deals with major local retailers or food service companies to permit them to manage store locations and procurements in exchange for royalties.

The convenience store business climate in developing countries also helps their expansion. Aside from Singapore, these countries have a large young population in their 20s and 30s.

Korean convenience store operators typically launch their business in city centers or in large shopping malls and later expand into residential areas.

ECONOMY OF SCALE

They utilize Korean music, drama and food to lure young customers who are K-wave fans.

Earlier this month, CU inked a deal with YG Plus Inc., the music distribution service affiliate of YG Entertainment, to renovate its stores at home and abroad with the IP of the label’s artists. The convenience store operator is poised to redesign its outlets with K-pop stars’ posters and videos and lure their fans inside to buy their favorite singers' albums.

Despite the headwinds, the convenience store industry must still cope with losses until it achieves an economy of scale, industry sources said.

All three Korean store operators have yet to recoup their initial investments as they aggressively expand their sales networks in overseas markets.

“An operator needs at least 1,000 stores in a country to log significant sales,” said a convenience store chain executive. “To be successful, it is better to secure an economy of scale quickly.”

Write to Young Chan Song at 0full@hankyung.com
 
Jongwoo Cheon edited this article.