Quick Stops, Big Wins: K-Convenience Stores

With over 50,000 locations nationwide, convenience stores in South Korea are no longer merely stores. Today, they are not only a must-visit spot for tourists but also one of the central icons of the consumption trend, launching a number of instantly sold-out items, such as the Dubai chocolate. The Sungkyun Times (SKT) aims to analyze the K-convenience store industry’s growth and explore its current limitations and potential solutions.

A Modern Retail Revolution

-The Rise of K-Convenience Stores

A convenience store is a general store usually open 24 hours a day, selling groceries and daily necessities. In 1927, Southland Ice Company of the United States founded the first convenience store, which developed into the world’s largest franchise after being branded 7-Eleven in 1946. As for South Korea, the history of convenience stores began in 1982, when Lotte Shopping opened Lotte Seven in Seoul City. Upon entering the 2000s, the industry expanded dramatically due to its high affordability and accessibility amidst the increasing proportion of single-person households. Since then, nationwide convenience stores have steadily increased, reaching 50,000 for the first time in 2021 and exceeding 55,000 as of 2023. This remarkable growth is also prominent in sales statistics. According to a 2023 press release by the Ministry of Trade, Industry, and Energy (MOTIE), annual sales of the domestic convenience store industry rose 8.1% in 2023, compared to department stores and supermarkets, which rose 2.2% and 0.5%, respectively. Currently, the industry is spotlighted as the last stronghold of offline retail as e-commerce continues to increase in popularity. Nowadays, major convenience store franchise companies in South Korea include CU, GS25, 7-Eleven, and Emart 24.

-Convenience at Its Finest

Korean convenience stores utilize multiple strategies to secure their customer bases steadily. First, each company exclusively develops and sells several original products. For example, the affordable and wholesome Kim Hye-ja Lunch Box series launched by GS25 in 2010 was revolutionary at that time, when convenience store meals were regarded as low-quality food.

This series marked the beginning of the convenience store food craze and remained highly popular even after its re-launch in 2023. In addition, CU released its low-sugar ice cream series Lalasweet in 2022 when low-calorie foods were trending, and GS25 introduced its super-size instant noodle series Jumbo Ramyeon in 2023 to appeal to young and fun-loving consumers, both of which were an instant success. Such original products foster healthy competition between companies, leading to a more flexible and productive industry as a whole. Next, Korean convenience stores collaborate with various forms of intellectual property, including games, characters, and movies, to design creative products. GS25, for instance, collaborated with the Korean game company Nexon this May to launch a series of baked goods based on its popular mobile game Blue Archive. The items in this series, each enclosed with a random character sticker, received an enthusiastic response from fans, reaching up to 1 million sales within 20 days. These unique collaboration products not only positively affect convenience store sales but also advertise each collaborating company, contributing to a win-win relationship. Lastly, K-convenience stores serve as multifunctional platforms offering several valuable services, usually available around the clock. These services include in-store eating areas with microwaves and hot water dispensers, ATMs, and transportation card charging systems. Also, consumers can receive and send packages through the convenience store delivery service, which is generally cheaper and simpler than other postal services.

Behind the Shelves of Success

-Checkout Concerns

While convenience stores offer a diverse experience beyond mere convenience, some consumers currently express dissatisfaction. First, the cheap, quick, ready-to-eat meals sold at convenience stores display poor nutritional content. In June 2023, the Korea Consumer Agency (KCA) analyzed ten popular types of convenience store lunch boxes. It revealed that the sodium content per lunch box was 1101-1721 milligrams, 55-86% of the recommended daily intake for adults. Also, according to a 2023 paper by the Department of Food and Nutrition at Kongju National University, the average convenience store kimbap exhibits a nutrition imbalance, with protein, calorie, and mineral contents that do not meet the recommended standard for one meal. In addition, hygiene problems have recently occurred at several convenience stores. According to the Ministry of Food and Drug Safety (MFDS), as of September 2023, roughly 1,900 violation cases of the Food Sanitation Act have been reported over the past five years, mostly due to storage of expired products and failure to provide hygiene education. Lastly, there are issues concerning the current sales status of over-the-counter (OTC) drugs sold at convenience stores, which provide consumers with medicine during the night, holidays, and other emergencies when visiting the pharmacy is difficult.

To prevent drug misuse, Article 44-4 of the Pharmaceutical Affairs Act restricts the number of OTC drugs that can be sold to only one item per person. However, according to a 2023 survey of more than 1,000 convenience stores nationwide by the association Consumer Action for Future, as many as 46.5% still needed to conform to this rule. This is because payments using cash, different credit cards, or different POS devices allow convenience stores to sell multiple drugs to a single person without being detected. In an interview with the SKT, Lee Dayun (Sophomore, Department of Global Economics) pointed out, “Properly handling medicine is critical in that it is directly related to health, so I am worried about the current negligence of the industry.”

-Storefront Struggles

Meanwhile, convenience store owners also encounter numerous challenges within the industry. First, they face financial problems in employment. Due to the nature of convenience stores, which usually operate 24 hours a day by mostly part-timers, the four major social insurances and statutory leisure pay are included in the wages. Hence, convenience store owners must bear relatively higher labor costs than other industries. In fact, on average, labor costs account for nearly half of the total operating expenses of convenience stores, according to Maeil Ilbo this May. In an article by the Korean Economic Daily this July, President Kye Sang-hyuk of the Korea Convenience Store Association mentioned, “Labor costs especially burden many owners in rural areas, and some have no choice but to hire multiple part-timers for two to three hours each or even work by themselves.” Furthermore, convenience store franchisees struggle with complications involving the franchise headquarters. For franchisors, a higher number of stores indicates a lower delivery price per unit and a larger transaction size, so they aim to secure as many stores as possible. However, this negatively impacts franchisees because individual profit per store decreases when the number of stores increases within a limited commercial zone. While the autonomous agreement established by the Korea Association of Convenience Store Industry in 2018 contains distance restrictions on opening new convenience stores, it is not legally binding, and the distance measurement method is ambiguous. Not only do franchisors strive to open more new stores, but sometimes they also refuse to close their existing ones. In a report by Maekyung Economy on May 17^th, Kim, a store owner in Seoul City, shared the experiences of himself and other franchisees who requested to terminate the franchise contract after following the closing process properly but were rejected by the headquarters. This is a problem caused by the overheated store count competition between companies and the performance pressure within the headquarters, which leads to franchisees being sacrificed for the franchisor’s growth.

Aisles Ahead for Improvement

-Buying Into Consumer Needs

Taking consumer needs into consideration, convenience stores may develop into a more welcoming space for all. Firstly, rather than forcibly restricting convenience store foods that lack nutritional value, it is essential to increase the number of available healthier options and actively recommend choosing them. For example, every summer since 2021, CU has released a new series of ready-to-eat meals called The Healthy Diet, which includes a variety of high-protein, low-calorie menus, and these series have exceeded 1.35 million in the total number of sales. Likewise, this May, the MFDS started to designate Healthy Food Corner sections in convenience stores nationwide, separately displaying low-sugar, low-sodium products to help consumers easily identify nutritious foods. Next, tackling hygiene problems requires the efforts of both the franchisors and the government. In an interview with the SKT, a former part-timer at a convenience store in Jongno District asserted, “Store hygiene management is mostly up to part-timers, so there is a big difference between stores even within the same franchise,” stressing that regulations at the headquarters level are necessary. For example, 7-Eleven currently examines its stores more than three times a month and hires a professional inspection agency twice a year, exhibiting exemplary conduct for other companies. Meanwhile, in May 2023, the KCA conducted hygiene inspections exclusively on 690 unstaffed and hybrid convenience stores nationwide. Such inspections for staffed convenience stores are also recommended, as well as further activating the number and the scope of these inspections through active cooperation between the local authorities and the MFDS. Finally, OTC drugs must be appropriately sold to ensure the safety of consumers. It is necessary to increase the legal training required for OTC drug sellers, which is currently only four hours, and implement a system like that of Japan, where OTC drug sellers not only receive prior one-off training but also attend annual educational sessions to acquire up-to-date information, such as related laws and risks. In addition, safety information posters should be placed carefully near OTC drug shelves, and strengthening legal regulations and monitoring systems is crucial to prevent illegal sales.

-Empowering Store Owners

For the convenience store industry to continue thriving, the utmost priority should be given to easing the burden on franchisees. First, hybrid convenience stores are a suitable option for reducing operational costs in the long run, as they operate manned during the day and unmanned at night with a self-checkout system. Hybrid stores are incredibly convenient for store owners because a mobile app allows remote control of the store, sending real-time notifications when, for example, customers access tobacco shelves. Also, they are equipped with a robust security system. In the case of Emart24 hybrid stores, motion and heat detection cameras and numerous closed-circuit television cameras (CCTVs) are installed inside and outside the building. In fact, because of these advantages, Emart 24 increased its hybrid stores from 85 in 2019 to more than 2,000 in 2023, currently boasting the most significant number within the industry. Secondly, it is essential to protect franchisees from the franchisors’ unjust pressure and pursue a clear communicative sphere between the two sides. In an interview with Asia Economy in May 2023, lawyer Lee Jin-wook of the law firm Palma advised, “Instead of strengthening regulations, providing incentives for model franchise headquarters would induce them to comply with the current autonomous agreement.” In addition, the amendment to the Franchise Business Act currently discussed by the 22^nd National Assembly would, if passed, establish a legal basis for convenience store franchisees to engage in collective negotiations with the franchisors. While this amendment is expected to limit the power abuse of franchise headquarters, it could possibly constrict the industry’s growth, so it is advisable to employ its implications to a certain extent. Above all, because political and economic friction within the industry is inevitable, maintaining balance through steadily seeking compromises is crucial.

What do convenience stores mean for Kingos? For some people, they represent a warm solace, offering sweet snacks to satiate hunger and comfort when eating alone, but for others, they are harsh scenes marked by discomfort and worry. Until today, K-convenience stores have transformed remarkably, evolving into hubs that sell everything, everywhere. It is now imperative that measures are taken to ensure that they become more convenient for everyone, once and for all.