August 14, 2017 13:34
Korea has seen such an explosive increase in convenience stores that it now one-and-a-half times as many per head of the population than Japan, which notoriously swarms with them.
According to the Korea Association of Convenience Store Industry, there were 37,539 convenience stores in Korea at the end of last month. Given that Korea has a population of 51.25 million, that boils down to for every 1,365 people. In Japan, there are 56,160 of the brightly-lit 24-hour outlets for a population of 125 million, or one for every 2,226 people. In per-capita terms, there are 1.6 times more convenience stores in Korea than in Japan.
The numbers in Korea are rising rapidly. In late 2011 there were only 21,221, and by late last year there were about 11,000 more. In the first seven months of this year alone another 5,000 opened. And industry watcher said the number is expected to surpass 40,000 this year.
The surge is due to the relative ease of opening one compared to other franchise outlets and the smaller costs. According to the Fair Trade Commission, the average cost of starting a convenience store was W71.2 million last year, compared to W101 million for a franchise restaurant, W125 million for a coffee shop and W99.8 million for a pizza chain store (US$1=W1,146).
But the glut in a limited market has led to a gradual decline in per-store earnings. According to Statistics Korea, the average operating margin per convenience store fell from 5.3 percent in 2013 to a paltry 4.3 percent in 2015. Over the same period, the margin of fried chicken restaurants rose from 13.7 to 17.4 percent and of coffee shops from 8.5 to 13.1 percent.
The biggest problem is when new convenience stores open a few doors down from an existing one. The National Commission for Corporate Partnership recommends that convenience stores of the same franchise refrain from opening new stores too close to each other, but there is no regulation for competing franchises. The operating margins are expected to decline even further next year, when the minimum wage rises from W6,470 to 7,530.
Franchises are being advised to improve the quality of existing stores rather than focusing on expansion. The average size of a convenience store in Korea is 72 sq.m compared to 132 sq.m in Japan. This means Korean stores cannot offer a wider range of products and services.
Seo Yong-koo at Sookmyung Women's University said, "Continued expansion in an already saturated market would be disastrous for existing store owners. It's qualitative growth that's needed, like in Japan."
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