Overseas Travel and Frequent Rain Burden... Convenience Stores Aim for a Turnaround in the Second Half

Overseas Travel Boom + Frequent Rain Forecast... 2Q Expectations Fall Short
Efforts to Expand Number of Visitors and Spending per Customer... Strengthening Differentiated Products

The "convenience store duopoly" is expected to record earnings below market expectations for the second quarter of this year. With the endemic era (periodic outbreaks of infectious diseases) leading to a surge in pent-up overseas travel demand and more frequent rain than usual, foot traffic to convenience stores failed to exceed high expectations. The key focus for the second half of the year is also on customer recovery. To achieve this, the plan is to strengthen product competitiveness through a two-track approach: value-for-money products focused on low prices and high-quality products that break the conventional image of convenience stores.

Models at CU are showcasing the 'Deuktem Series' products
[Photo by BGF Retail].

According to financial information firm FnGuide on the 17th, GS Retail's consolidated earnings estimate for the second quarter, including convenience stores (GS25), is an operating profit of 81.4 billion KRW and sales of 2.9704 trillion KRW. This is expected to represent increases of 71.73% and 5.45%, respectively, compared to the same period last year. During the same period, BGF Retail, which operates the convenience store CU, is forecasted to have a second-quarter consolidated operating profit of 79.8 billion KRW and sales of 2.091 trillion KRW, representing increases of 12.71% and 8.99%, respectively, compared to the previous year.

Among retail sectors, convenience stores have relatively low economic volatility and less uncertainty regarding sales growth. Nevertheless, the main factors significantly affecting second-quarter convenience store performance were the increase in domestic overseas travel and the frequent rainy weather. Following the reopening of the economy, domestic overseas travel increased significantly in the second quarter compared to the same period last year, continuing the trend from the first quarter. The increase in domestic overseas travel negatively impacts convenience store customer numbers because the longer potential customers stay abroad, the less frequently they visit convenience stores. Convenience stores are characterized by a low average spending per visit, under 10,000 KRW, but high visit frequency due to their proximity.

The number of rainy days in the second quarter this year was 30, more than the 23 days during the same period last year, which also negatively affected performance. Inclement weather similarly reduces convenience store visit frequency. Last year's second quarter saw a surge in demand for relatively inexpensive convenience store food due to soaring inflation, resulting in a high base, which became a burden for this year's second-quarter performance. While demand for ready-to-eat meals remained strong, the slowdown in processed food price increases negatively impacted convenience store earnings. Accordingly, BGF Retail's same-store sales growth rate for the second quarter was expected to be around 2-3%, while GS Retail's was projected to be about 1.5%.

In the second half of the year, securing both customer numbers and average spending per visit remains crucial. Accordingly, domestic overseas travel and the number of rainy days are expected to continue influencing convenience store performance in the second half. While monitoring external variables, convenience stores plan to internally focus on strengthening product competitiveness.

BGF Retail aims to increase customer numbers by expanding value-for-money product promotions and raise average spending by increasing the proportion of food products. BGF Retail is focusing on value-for-money products such as the 'Deuktem Series' and expanding hit products like high-quality home meal replacements (HMR). Since food products have a high rate of related product purchases, strengthening a food-centric lineup helps recover customer numbers and also raises average spending. The company also plans to continue expanding the number of stores based on market share. It is expected that consumers will maintain a high frequency of convenience store food purchases as substitutes for rising dining-out prices in the second half. Kim Myung-joo, a researcher at Korea Investment & Securities, said, "BGF Retail's same-store sales growth rate in the third quarter is expected to be around 3.5-4.0%."

A model is introducing the 'Kim Hyeja Dosirak' series at GS25.
[Photo by GS Retail].

GS Retail plans to focus on cost reduction, including labor and promotional expenses, which weighed on second-quarter results. Despite the strong performance of supermarkets and hotels, GS Retail is expected to report results below market expectations due to the sluggish performance of its core convenience store business, which acts as a cash cow in the second quarter. To improve profitability through customer recovery at convenience stores, GS Retail plans to strengthen product competitiveness. The company is reorganizing popular products such as the re-launched 'Kim Hye-ja Dosirak,' which has surpassed 8 million cumulative sales this year, and expanding the large-size Jumbo series to enhance the differentiated product lineup at GS25. Researcher Cho Sang-hoon of Shinhan Investment Corp. said, "It is encouraging that GS25 is strengthening various O4O (Online For Offline) services such as GS Pay, Wine25 Plus, half-price delivery, and Our Neighborhood GS," adding, "The key will be the recovery trend of same-store sales growth to offset increased labor costs due to workforce reallocation."

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