"Convenience Stores Prefer Exclusive Products Over Bad Weather" Reasons for Optimism Despite a Slump in Q3

3Q GS25·CU Performance to See Slight Increase
Bad Weather and Increased Overseas Travel... Causes of Reduced Visitors
Continued Expectations for Differentiated Products Like Unique Collaboration Items

Due to frequent rain this summer, the third-quarter performance of the convenience store 'two-tops' is expected to slow down. However, strategies to secure loyal customers based on eye-catching collaboration products are gaining momentum, and the expansion strategy of cost-effective products led by private brands (PB) is also gaining traction. Therefore, if the external environment stabilizes, it is considered reasonable to expect growth in consumer visits and overall expansion.

Models at CU are introducing CU's own private brand (PB) products, 'Pizadeuktem' and 'Kimchi Bokkeumbap Deuktem'
[Photo by BGF Retail].

Unfavorable Weather Hurts Convenience Stores' Third Quarter

According to financial information firm FnGuide on the 17th, GS Retail's consolidated operating profit for the third quarter of this year is expected to be 113.1 billion KRW, with sales of 3.1307 trillion KRW. These figures represent increases of 29.11% and 5.91% respectively compared to the same period last year, indicating a favorable performance following the previous quarter. However, GS25, the convenience store operated by GS Retail, is expected to record sales of 2.2 trillion KRW and operating profit around 72 to 73 billion KRW, showing only a slight increase compared to the same period last year.

Although about 200 new GS25 stores opened in the third quarter, the growth rate of existing stores is estimated to have remained around 1% due to an increase in overseas travelers and frequent rainy weather. Rising logistics costs, along with increased expenses such as labor and rent, also weighed on profitability, leading to an expected operating profit margin of about 3.5%, down 0.1 percentage points from the same period last year. However, performance is expected to improve going forward. This year, investments aimed at strengthening core businesses such as convenience stores are projected to be between 500 billion and 600 billion KRW, and new convenience store openings are expected to reach 800 to 900 stores this year. GS25 aims to open 800 new stores next year as well.

BGF Retail, which operates the convenience store CU, is expected to report a consolidated operating profit of 95.8 billion KRW and sales of 2.2267 trillion KRW for the third quarter of this year. These figures represent increases of 4.59% and 8.32% respectively compared to the same period last year. However, compared to the previous quarter, the performance was somewhat sluggish, with negative weather factors such as frequent rain this summer reducing consumer visits that typically occur on hot days. The growth rate of existing convenience stores in the third quarter is expected to be around 1.5%, falling short of expectations. Additionally, increased costs due to normalization of rent after COVID-19 and headquarters-led store openings also negatively impacted performance. As a result, the operating profit margin is forecasted to slightly weaken to around 4% compared to the same period last year. On the positive side, the sales composition improved with increased proportions of food, processed food, and non-food items. In the third quarter, CU saw a decrease in tobacco sales share, while food items such as home meal replacements (HMR), processed foods including snacks, alcoholic beverages, and dairy products, as well as non-food items like miscellaneous goods, expanded their sales scale.

The model is examining this year's GS25 signature product, the 'Kim Hyeja Dosirak (Hyejaroun Home-cooked Meal)' [Photo by GS Retail].

Distinctive Differentiated Products as a Competitive Edge

Despite the third-quarter slowdown in performance of the two leading convenience stores, the market remains optimistic. Currently, due to economic uncertainty, consumer visits are dispersing to cost-effective channels such as corporate supermarkets (SSM) rather than convenience stores, but this trend is expected to be temporary. Convenience stores are not only emphasizing their core strength of proximity convenience but are also actively developing unique collaboration products and items exclusive to their stores, thereby increasing channel loyalty.

In fact, GS25’s representative differentiated product, the 'Kim Hyeja Dosirak (Hyejaroun Jib Bap)', continued its strong sales performance in the third quarter, reaching a cumulative sales volume of 13.5 million units as of the 13th. The monthly direct sales effect amounts to 8.5 billion KRW. Customers deliberately visit GS25 to purchase this product. The 'Netflix Jumbo Popcorn', launched in collaboration with Netflix, ranked first in GS25’s snack sales in the third quarter. The 'Paldo Jumbo Dosirak', an extra-large instant noodle cup weighing 729g, also gained popularity, contributing to raising the share of PB instant noodle cup sales to a record high of 28.4% in the third quarter.

CU is also focusing on securing competitiveness through expanding its unique product lineup. The PB product 'Heyroo Cheongyang Mayo-flavored Shrimp Chips', which gained attention alongside the Maktaekang craze, sold over 100,000 units within about a month of its third-quarter launch. The 'Yonsei Milk Cream Bread', which sparked a 'CU Open Run', also serves as an incentive for customers to visit convenience stores, especially CU. The PB 'Deuktem' series, emphasizing price competitiveness amid high inflation, maintained steady popularity in the third quarter.

With the reality of an overall economic downturn due to high interest rates and high inflation, the convenience store channel, which has a defensive nature against economic fluctuations, is expected to maintain a solid business trend next year as well. Lee Jin-hyup, a researcher at Hanwha Investment & Securities, said, "The development path of the distribution industry has been toward expanding consumer convenience, and convenience stores have been at the center of this. When the external environment stabilizes, a rebound in convenience store traffic is expected."

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