[Tears of the Self-Employed Republic] Convenience Stores Closing Next to Shuttered Restaurants... 1 in 10 Survive

Restaurant Industry Faces Declining Profits... Highest Closure Rate
Convenience Store Closures Exceed 2,000... Labor Costs Most Burdensome

The economic downturn for self-employed business owners continues. A notice advertising rental availability is posted in a vacant store in the Euljiro underground shopping center in Seoul. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporters Lee Seon-ae, Choi Sae-hye, Cha Min-young] "I only have regrets about entering the food service industry. To reduce labor costs, I work day and night without weekends, but after paying rent, I earn less than a salaried worker. Competition is fierce, dining expenses are decreasing, and this year I am seriously considering whether to close down." On the afternoon of the 5th, Mr. Han (49), the owner of a baekban (set meal) restaurant in Jung-gu, tearfully expressed his frustrations. He said, "Every time I hear news of closures here and there, my heart sinks," and lamented, "It’s truly a difficult country for self-employed people to survive." Mr. Lee (51), who runs a convenience store just 50 meters away, also said, "At this age, I lose sleep and work late into the night at the store," adding, "I can’t even afford to hire part-time workers, and losses keep piling up, so I’m thinking about closing down."

◆Food Service Industry Making Only 600 Won Profit on a 7,000 Won Lunch= The cries of self-employed people running restaurants and convenience stores are reaching the sky. Due to the ongoing recession, consumers have tightened their wallets, and self-employed individuals are waiting for customers who do not come, while facing a bombshell of labor costs and rent, along with rising raw material prices and fierce excessive competition. According to the Korea Foodservice Industry Research Institute on the 6th, the food service industry business outlook index for 2019 was 65.97 in Q1, 65.08 in Q2, and 66.01 in Q3. These figures are significantly below the baseline of 100, which indicates the same economic level as the previous year’s corresponding quarter. The institute analyzed that "overall, the food service industry shows a strong but stable recession trend," and evaluated that "except for the catering service sector, there was no significant difference in the business outlook index among industries."

According to the 'Korea Foodservice Industry Statistical Yearbook 2019' published by the Korea Foodservice Association, operating profits in 2017 decreased by 10.68 million won compared to the previous year, marking a decline for three consecutive years. The operating profit margin of domestic foodservice companies was about 22.9% in 2008 but sharply dropped to 8.7% in 2017, and this trend has continued to the present. The institute emphasized that this year will be even more difficult for self-employed people. Kim Sam-hee, director of the Korea Foodservice Industry Research Institute, diagnosed, "Excessive competition is causing profitability to deteriorate, increasing closure rates, and creating a vicious cycle that weakens the overall competitiveness of the food service industry. Without clear countermeasures, this year will be pushed into a serious situation."

◆Only 1 to 2 Out of 10 Food Service Businesses Survive= The closure rate in the food service industry is higher than the average closure rate across all industries. As of 2017, it reached 23.1%, nearly twice the average closure rate of 12.6% for all industries. According to Statistics Korea, the survival rate for accommodation and food service businesses (as of 2016) is 61.0% within one year, 32.2% within three years, and 18.9% within five years, meaning that after 10 years, only 1 to 2 out of 10 food service businesses survive.

Nevertheless, excessive competition, one of the crisis factors, shows no signs of easing. According to the Korea Agro-Fisheries & Food Trade Corporation’s '2019 Major Statistics of the Foodservice Industry,' the number of food service businesses was 692,000 in 2017, an increase of 2.5% from the previous year and 19% compared to 2007. According to the Korea Foodservice Industry Management Research Institute’s 'Research Service for the Development of Shared Kitchen Industry,' food service startups accounted for an average of 17% of all 53 industry startups from 2007 to 2017, but during the same period, the ratio of closures to new startups averaged 90.9%.

◆Delivery Competition Accelerating Closure Risks= Furthermore, delivery competition is intensifying, accelerating closures. The delivery app market size is estimated at around 5 trillion won, with monthly users exceeding 5 million. In the same area, dozens of restaurants compete through delivery apps.

Mr. Kwon Ji-hoon (pseudonym, 59), who runs a chicken restaurant in Namyangju, Gyeonggi Province, said, "Even raw meat restaurants that were far from delivery services nearby are now offering delivery," adding, "Since dining in is difficult, everyone is jumping into delivery, but with commissions, agency fees, services, delivery times, and reviews, there are more things to worry about, and business is still tough, so I’m considering closing." Mr. Kim Seung-rae (pseudonym, 39), who runs a franchise hof (beer pub) in Guro-gu, sighed, "Due to the recession and market sharing, more colleagues are giving up their businesses," adding, "In my neighborhood alone, the number of restaurants registered on delivery apps doubled compared to last year, cutting sales in half." Mr. Kim added, "Since the economy is bad, only low-priced beer and all-you-can-eat samgyeopsal (pork belly) places attract customers."

◆Convenience Store Industry Hit Hard by Minimum Wage Increase= The situation for self-employed people running convenience stores is also tough. They are being driven to closures because they cannot cover rent and labor costs. Last year, Eugene Investment & Securities announced that the average daily sales per convenience store in Korea was 1.8 million won. However, based on last year’s minimum wage, labor costs for one person working 24 hours amount to 6,212,400 won per month. Even if the owner covers one person’s work, after paying royalties to headquarters, electricity bills, and rent, the actual amount left in the owner’s hand is very little.

In this situation, the number of closures has already exceeded 2,000. According to estimates by the Korea Convenience Store Industry Association, the number of new closures was 1,499 in 2016, 1,398 in 2017, and jumped to 2,040 in 2018. The number of new openings was 3,667 in 2018, sharply down compared to 5,116 in 2016 and 5,611 in 2017. The net increase in stores, calculated by subtracting closures from openings, was 1,627 in 2018, about 40% of the 4,213 in 2017.

Convenience store owners cite the minimum wage increase as the primary factor. An industry insider explained, "The minimum wage increase of more than 16% from 2017 to 2018 seems to have had the greatest impact," adding, "Previously, many multi-store operators (with two or more stores) hired part-time workers to run convenience stores, but such cases have significantly decreased."

This content was produced with the assistance of AI translation services.