If Paid 10,000 Won per Hour, Convenience Store Monthly Net Profit Drops by 24%

Simulation of Minimum Wage Increase Proposal
Labor Costs Exceed 70% of Total Operating Profit

Representatives of the Korea Convenience Store Owners Association are holding a press conference urging a reduction in the minimum wage on the 2nd at the Korea Federation of SMEs in Yeongdeungpo-gu, Seoul. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Lim Hye-seon] As discussions to decide next year's minimum wage intensify, convenience store franchise owners are expressing significant dissatisfaction. Since the outbreak of the novel coronavirus disease (COVID-19), consumption has sharply declined, and with labor groups proposing a 'minimum wage of 10,000 won,' the burden of labor costs is increasing. Ultimately, there are concerns that franchise owners will increase their own working hours, resulting in fewer jobs.

Convenience Store Owners Earn Less Than Part-Timers

According to the distribution industry on the 2nd, a domestic convenience store conducted a simulation on franchise owners' net profits based on the minimum wage. The results showed that if the hourly wage rises by 16.4% from this year to 10,000 won next year, the average monthly net profit of convenience stores is expected to decrease by 24.2%, from 3.15 million won this year to 2.39 million won next year. This estimate assumes a 1.5% increase in sales, other income, and costs.

Considering the inflation rate and based on a 24-hour operation convenience store, the average monthly sales in 2021 are estimated to be about 62.74 million won. The gross profit (sales margin) is around 18.82 million won. The sales margin paid to the convenience store headquarters is about 30%, so the total profit for the franchise owner is approximately 13.4 million won (including other income such as tobacco advertising of 2.3 million won). After deducting various operating expenses such as rent amounting to 4.71 million won, the operating profit is 8.7 million won per month.

Assuming the franchise owner works on weekdays (11 hours per day) and rests on weekends, working directly for 20 days and hiring part-time workers for the remaining hours, labor costs amount to 6.31 million won (including night and weekend premiums). This exceeds 70% of the total operating profit. This is even less than the monthly income of 2.83 million won earned by part-time workers who work 9 hours on weekday nights for 20 days. Ultimately, to reduce the proportion of labor costs in monthly income, the owner has no choice but to hire only two part-time workers?one for weekday nights and one for weekend nights?and work the rest of the hours themselves. A convenience store owner near Euljiro Entrance in Seoul said, "The minimum wage has increased by 32% over three years," adding, "With the economy frozen due to COVID-19, if the minimum wage rises again, franchise owners will not be able to endure it."

The impact of the minimum wage increase is greater for franchise owners who operate only one convenience store for their livelihood. The proportion of livelihood-type self-employed individuals operating one convenience store among the four major domestic convenience stores?CU, GS25, 7-Eleven, and Ministop?is about 70%. A convenience store official said, "This year, sales were halved due to the disaster," adding, "Even though we worked over 80 hours a week with family help, if the minimum wage rises excessively and losses continue, we have no choice but to close." The number of franchise owners closing their stores is also increasing. According to data from the Fair Trade Commission, the number of convenience stores terminating contracts early to completely exit the business, not due to contract expiration or brand changes, has been on the rise: 360 in 2016, 420 in 2017, and 460 in 2018.

Concerns Over Sharp Decline in Short-Term Jobs

There are concerns that short-term jobs, which were easy to obtain, will also significantly decrease. Shin Sang-woo, co-representative of the National Convenience Store Franchise Association, explained, "Convenience stores have provided short-term jobs, but due to the minimum wage increase, night closures, and franchise owners extending their working hours, jobs have decreased," adding, "If the economic downturn caused by COVID-19 prolongs or the minimum wage rises, we will have no choice but to reduce the jobs we have maintained or choose to close."

According to the Convenience Store Industry Association, the minimum wage, which was 6,470 won per hour in 2017, rose by 16.4% to 7,530 won in 2018, resulting in the disappearance of more than 42,000 part-time (full-time) jobs in convenience stores alone. Last year, when the minimum wage increased by 10.9% compared to 2018, a similar scale of part-time job losses was observed.

The Korea Convenience Store Owners Association held a press conference that day, demanding a reduction in the minimum wage. Hong Sung-gil, head of the Policy Bureau, stated, "In recent years, consumption has contracted and sales have sharply declined, and along with excessive store openings and rent increases, the rapid rise in the minimum wage leaves self-employed individuals with no room to endure," adding, "Among the approximately 60,000 convenience stores, 20% are operating at a loss, unable to even pay labor and rent costs." The association called for reflecting the economic crisis caused by the prolonged COVID-19 pandemic and for coexistence between self-employed individuals and workers by ▲reducing the minimum wage by 2.87% (the previous year's increase) ▲abolishing weekly holiday pay ▲differentiating the minimum wage by industry and size.

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