December 15, 2018 08:57
Market saturation, red tape and the minimum wage hike have made convenience stores a less popular option for people who want to start their own small business. Convenience stores have been mushrooming since 2000 due to low start-up costs and unchallenging franchise conditions.
Kang Jae-won (39, not his real name), has been in charge of setting up new stores at one convenience store franchise for almost a decade. "Until a few years ago, we used to see five to 10 visitors each week interested in opening a store, but nowadays it's only two to three, and the number of inquiries is declining even more as the end of the year approaches."
Kim Sung-hee (37), who has handled new openings in Gyeonggi Province surrounding Seoul for eight years, said, "Now weeks go by when we have no inquiries. Since 2010, around two convenience stores opened every month, but now there's rarely even one, and more and more people are giving up plans to open convenience stores."
BGF Retail, the No. 1 convenience store operator, saw net growth of its CU franchise fall from 100 in November 2017 to 42 last month. Net growth is calculated by subtracting the number of store closures from the number of store openings. GS Retail saw net growth of GS25 stores fall from 95 to 67 over the same period. 7-Eleven's net growth over the same period fell from 22 to just five.
According to the Ministry of Trade, Industry and Energy, the overall growth rate slowed from 13.7 percent in November 2017 to 4.9 percent in October this year. The biggest reason is that there are enough of them already. Their number across the country increased from 2,826 in 2000 to a whopping 35,520 this October. That brought the number of customers per store down to 1,300, compared to 2,100 in Japan and slashed potential profits.
Regulations are also reducing growth. Earlier this month, the Fair Trade Commission authorized a proposal by six franchises to ban the opening of a franchise store within 50 to 100 m from an existing one.
The sharp increase in the minimum wage is another factor. The minimum wage was hiked 16.5 percent this year to W7,350 an hour and will increase another 10.9 percent next year to W8,350 (US$1=W1,125).
"Many people scrap plans to open convenience stores due to fears that the minimum wage may increase even further," Kang said.
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