Polarization intensifies in S. Korea’s convenience store industry

[Graphics by Song Ji-yoon and Minu Kim]

A stark polarization trend is deepening within South Korea’s convenience store industry as GS25 and CU, the leaders in sales and store count, respectively, continue their expansion for the fifth consecutive year. In contrast, 7-Eleven and Emart24 are shutting down unprofitable stores.

According to industry sources on Monday, 7-Eleven saw a decline in store count by 763 outlets, reaching a total of 13,502 in the third quarter of last year compared to the end of the previous year. Over the past five years, among the four major convenience store chains including GS25, CU, and Emart24, only 7-Eleven has experienced a net decrease in store numbers.

Emart24 maintained its store count on an annual basis but closed 151 unprofitable stores in the last quarter of the previous year, marking the first decline in growth for the company.

GS25 and CU, dominating the industry, have been engaged in fierce competition, expanding their stores for five consecutive years to reduce logistics costs. In 2023, GS25 added 942 stores, while CU increased its store count by 975. Despite adverse conditions such as inflation, high-interest rates, and consumer sentiment downturns, convenience stores achieved an 8.1 percent increase in sales last year, outpacing the average growth rate of offline retail businesses.

The industry interprets 7-Eleven and Emart24’s recent moves as a shift towards securing profitability rather than engaging in aggressive store expansion. In fact, the per-unit area annual sales of 7-Eleven and Emart24 are about 10-20 percent lower than that of GS25 and CU, indicating lower profitability. According to the Fair Trade Commission’s data, GS25’s per-unit area annual sales in 2022 were 28.46 million won ($21,400) while 7-Eleven lagged behind at around 25.46 million won.

The financial performance of companies behind the operation of these convenience store chains has also played a significant role. Korea Seven, the operator of 7-Eleven, recorded a cumulative operating loss of 224 billion won until the third quarter of last year, with the integration costs from the acquisition of Mini Stop in 2022 hampering its financial health. Emart24 also turned into negative territory last year, reporting an operating loss of 230 billion won, just a year after recording its first profit of 68 billion won in 2022.

7-Eleven plans to resume store expansion after completing the transition from Mini Stop at the end of March, focusing on developing high-sales potential stores. Emart24, in a bid to establish a profitable structure, plans to consolidate logistics centers by reducing them from 14 to 11. Additionally, the company is set to launch a new franchise model in collaboration with No Brand, aiming to restart its store expansion efforts.