Korean major retailers go all-out to raise profitability

[Courtesy of Lotte Mart]

South Korean retailers, from large discount stores and super supermarkets to convenience stores, are aggressively adapting a joint sourcing strategy to reduce costs and enhance price competitiveness.

According to industry sources on Tuesday, Shinsegae Group is engaged in an integrated sourcing of its sales channels Emart Inc., Emart24 Inc., and Emart Everyday Inc.

The joint sourcing strategy gained momentum after new Emart Chief Executive Officer Han Chae-yang took charge of overseeing the operations of Emart retail channels that were previously managed independently.

Han consolidated the product departments of the three Emart channels and established a new department by merging its in-house private brand (PB) lines.

Industry insiders expect the offline channels to take the lead in product planning and direct purchases with a focus on PB products.

The retail channels under Lotte Group have also been implementing a comprehensive joint sourcing strategy since last year.

Lotte Mart CEO Kang Sung-hyun, who oversees supermarket chains as well, has integrated tasks from product planning to ordering and data analysis across Lotte’s big box stores and supermarkets.

Lotte Mart’s operating profit soared 57.3 percent to 51 billion won ($39.4 million) in the third quarter from the same period a year ago. Lotte Super’s operating profit surged 146.6 percent to 14 billion won during the same period.

Lotte Mart aims to complete the integrated sourcing process by 2025 and further increase the proportion of jointly handled products.

Retailers have also joined hands with 7-Eleven convenience stores operated by Korea Seven Co.

Last month, they collaborated with Baskin-Robbins to release two types of PB coffee. From the planning stage, merchandisers from each company collaborated to decide on the concept and flavor.

Due to the strong presence of convenience stores in the to-go coffee market, the contracted quantity for these coffee products is reported to be more than three times higher compared to when convenience stores are not involved.

Joint sourcing has helped cut costs, resulting in the prices of the coffee products being approximately 5 percent lower than the average of other existing products.

GS Retail Co. is also expanding joint sourcing between convenience store chain GS25 and supermarket GS The Fresh.

This month, the retailer integrated the merchandising organizations of convenience stores and supermarkets, streamlining to 25 teams in three divisions from 35 teams in five divisions.

GS Retail has been accelerating integration since May 2021, establishing a new convenience store planning team as part of the supermarket business merchandising department.

The strategy is to widen distribution channels by selling fresh food sourced from supermarkets in convenience stores.