Convenience Stores Bloom Amid Recession... Q4 Outlook 'Uncertain'

Convenience Stores Show Strong Q3 Performance Amid Economic Downturn
Joining in Mourning for 'Itaewon Tragedy'... Quiet Convenience Store Industry

[Image source=Yonhap News]

[Asia Economy Reporter Heo Midam] Amid recent high inflation dampening consumer sentiment, the convenience store industry continues to post strong performance this year, following last year's success. This is due to increased outdoor activities after the lifting of social distancing measures and rising dining-out prices, which boosted the popularity of convenience store lunch boxes. However, with the spread of marketing restraint movements in the convenience store sector following the Itaewon tragedy, it remains uncertain whether the strong performance will continue.

The growth trend in the convenience store industry has been ongoing since last year. According to the Financial Supervisory Service's electronic disclosure system, GS Retail, which operates GS25, recorded sales of 7.2113 trillion KRW last year, a 3.4% increase compared to the previous year. BGF Retail, which operates CU, also saw its sales rise by 9.7% year-on-year to 6.7812 trillion KRW last year.

Despite the prominent "three highs" phenomenon this year?high inflation, high exchange rates, and high interest rates?the convenience store industry posted strong results. In the third quarter of this year, BGF Retail's sales reached 2.0557 trillion KRW, up 11.9% from the same period last year. Operating profit also increased by 31.7% to 91.5 billion KRW, compared to 69.5 billion KRW in the third quarter of last year.

Generally, the third quarter, when summer begins, is considered the peak season for convenience stores. Sales increase due to higher demand for ice cream, beverages, and alcoholic drinks during the summer. Additionally, the resumption of full-scale outdoor activities from summer following the lifting of social distancing, along with the "lunchflation" phenomenon (lunch + inflation), which increased demand for convenience store lunch boxes, appear to have positively influenced performance.

However, it is uncertain whether the strong performance will continue into the fourth quarter following the third quarter. The first and fourth quarters are typically considered off-seasons in the convenience store industry due to reduced outdoor activities caused by cold weather.

The convenience store industry has traditionally conducted marketing campaigns aligned with events such as Pepero Day, the College Scholastic Ability Test (CSAT), and Christmas to counteract off-season slumps. However, following the Itaewon tragedy and the ensuing mourning atmosphere, the convenience store sector has also canceled or scaled back planned events and marketing activities.

[Image source=Yonhap News]

The three major convenience store chains?CU, GS25, and Seven Eleven?have actively conducted promotional events by setting up display stands in front of stores ahead of Pepero Day every year, but this year, they have suspended or reduced such activities. However, online marketing through official Instagram accounts and other platforms has resumed.

Consequently, some voices suggest that it is difficult to guarantee strong performance for convenience stores in the fourth quarter. The Korea Chamber of Commerce and Industry's Retail Business Survey Index (RBSI) released last month showed a score of 60 for convenience stores in the fourth quarter, a significant drop from 103 in the previous quarter. The RBSI quantifies the business sentiment felt by retailers. A score above 100 indicates that more companies expect the next quarter's business conditions to improve compared to the current quarter, while a score below 100 means the opposite.

On the other hand, the securities industry still anticipates strong performance for convenience stores in the fourth quarter. Song Mingyu, a researcher at Kiwoom Securities, stated in a report on convenience stores, "It is expected that the convenience store sector will continue to show solid performance beyond the fourth quarter," adding, "Convenience stores have a high proportion of processed food sales, making them less sensitive to economic fluctuations, and they continue to benefit from inflation."