The first-quarter operating profits of BGF Retail and GS Retail, known as 'convenience store rivals', decreased by double digits. This is a result of significantly weakened consumer sentiment due to market saturation and the state of emergency. For the first time in 36 years, the number of convenience store locations, which had been steadily increasing each year, has begun to decline.
According to the Financial Supervisory Service on the 9th, BGF Retail, which operates the convenience store CU, reported a consolidated operating profit of 22.6 billion won in the first quarter, down 31% from the same period last year. Sales increased by 3.2% year-on-year to 2.0165 trillion won, but net profit fell by about 43% to 13.4 billion won. Ninety-nine percent of BGF Retail’s performance comes from the convenience store business.
GS Retail also saw its operating profit in the convenience store segment decline by about 35% to 17.2 billion won in the first quarter. Sales recorded an increase of 2.2%, reaching 2.0123 trillion won during the same period.
It is not just the two companies. According to a report from the Ministry of Trade, Industry and Energy, the average sales growth rate of domestic convenience store operators in the first quarter decreased by 0.4% compared to the same period last year. This marks the first quarterly decline since the statistics began to be compiled in 2013.
The industry attributes the drop in store visitations to the continued low temperatures in the first quarter, along with the politically and economically unstable environment stemming from the state of emergency towards the end of last year. Additionally, as the market reached saturation, the positive effects of new openings diminished. In the past, opening new stores would lead to simultaneous increases in sales and operating profits, but with the decrease in foot traffic, the burden of opening costs has only increased.
Inflation also had an impact. Previously, convenience stores had greatly increased sales and profitability due to a rise in outdoor activities following COVID-19 in 2022 and contributed inflation. An example of this is the increase in people opting for convenience store lunchboxes to save on lunch costs.
However, with recent inflation diminishing the price competitiveness of convenience store products, the number of purchases has shown a downward trend over the past few months. Kim Hye-mi, a researcher from Sangsangin Investment & Securities, noted, “Even when looking at the performance of food and beverage companies, while price increases continue, the decline in sales volume has a more significant impact, indicating that consumption of food, which has been perceived as essential goods, is underperforming.” She added, “Given the characteristics of convenience store channels, which have a high proportion of food sales, a similar trend seems inevitable.”
As the situation stands, the number of convenience stores has decreased for the first time in 36 years. According to the Korea Convenience Store Industry Association, the number of stores for the four major convenience store companies (CU, GS25, Seven-Eleven, and Emart24) was 54,852 at the end of last year, down 68 from the previous year. BGF Retail and GS Retail each added 700 stores, but Seven-Eleven reduced 1,018 stores, and Emart24 closed 468 locations, leading the overall decline.
The industry atmosphere is focused on structural efficiency. BGF Retail aims to expand foot traffic by strengthening differentiated products, such as health and beauty items, along with beverages and alcoholic drinks. Additionally, it plans to maintain identical store growth and a sustainable increases system to lay a foundation for long-term growth. GS Retail focuses on enhancing hit products and services while prioritizing solidifying its fundamentals over market expansion. Seven-Eleven and Emart24 are pursuing a store optimization strategy by reducing the number of stores.
Seo Jeong-yeon, a researcher at Shinyoung Securities, stated, “The current strategy of companies is to endure the downturn by developing high cost-performance private brand (PB) products, timely releasing them, and flexibly making decisions on production quantities or withdrawal timing based on market responses.”
The outlook for the convenience store industry in the second quarter varies. Yoo Jeong-hyun, a researcher at DAISHIN SECURITIES, noted, “Although we have entered the peak season in the second quarter, considering the inclement weather on weekends in April and May, it seems unlikely that traffic will improve immediately.” He added, “Once the store closures of lower-tier companies and industry restructuring are completed, the benefits for leading players will be significant.” Kim Hye-mi from Sangsangin Investment & Securities commented, “There is a likelihood of limited additional deterioration given the expectations for consumer stimulation associated with the peak season and the launch of the new government.”