[Convenience Store Empire] Convenience Stores Rule? Then You Should Buy Stocks

⑩Rising as a Leader in the Distribution Industry

Stocks Relatively Resistant to Recession
Increase in Foot Traffic and Demand for Convenience Foods
Growth Alongside the Rise of 1- and 2-Person Households

Office worker Lee Hyun-seok (34) recently purchased convenience store stocks. He judged that the outlook was not bad as trendy products are released daily and the number of stores is steadily increasing. Lee said, "I needed to buy defensive stocks for my portfolio, so I bought a little," adding, "I plan to make split purchases whenever the stock price drops."

Recently, amid ongoing economic recession and high inflation, convenience store stocks, which are relatively resilient to downturns, are gaining attention. This is because the lifting of social distancing has increased foot traffic, and the lunch inflation phenomenon has boosted demand for convenience store ready meals. Among distribution channels, convenience stores have the lowest average spending per customer, serve as a nearby shopping channel, and operate 24 hours, resulting in relatively low price sensitivity.

According to financial information firm FnGuide on the 23rd, BGF Retail's sales in the first quarter of this year are expected to grow 9.23% year-on-year to 1.8484 trillion won, and operating profit is projected to increase 14.81% to 43.4 billion won. GS Retail's sales are forecasted to rise 6.74% to 2.7736 trillion won compared to the same period last year, with operating profit expected to surge 85.71% to 50.7 billion won.

BGF Retail, the market leader, focused solely on the convenience store business while competitors concentrated investments on non-convenience store sectors. Aligning with the trend of nearby shopping, it expanded stores mainly in new towns and residential areas, and has been focusing on enhancing competitiveness in fresh food (FF) and home meal replacements (BMR). This year’s core strategy is to expand a one-stop online and offline shopping ecosystem for customers. The company plans to strengthen store competitiveness through product differentiation and expand online services for offline stores.

BGF Retail’s operating profit last year was 259.3 billion won, a 30% increase from the previous year. During the same period, sales rose 12.3% to 7.6158 trillion won, and net profit increased 34.7% to 198.8 billion won. Operating profit in the fourth quarter grew 19.4% year-on-year to 59.2 billion won. Sales and net profit were 1.9493 trillion won and 46.1 billion won, respectively. Despite record cold waves in December and a high base in the previous year, BGF Retail explained that the World Cup event effect and differentiated products and brand competitiveness expanded the sales composition ratio of food and processed food categories. The number of stores increased by 932 from the previous year to 16,787.

GS Retail’s operating profit last year was 245.1 billion won, up 11.7% from the previous year. Sales increased 15.8% to 11.2264 trillion won, while net profit dropped 93.7% to 50.4 billion won. Fourth-quarter operating profit rose 180.9% year-on-year to 85.3 billion won. Sales and net loss were 2.8885 trillion won and 40.1 billion won, respectively. GS Retail operates in various business areas including convenience stores, supermarkets, hotels, and home shopping. Looking only at convenience stores, fourth-quarter sales increased 9.1% year-on-year to 1.9879 trillion won, and operating profit rose by 11.6 billion won to 43.2 billion won during the same period. GS Retail stated that although IT investment costs increased for services like Our Neighborhood GS and advertising and promotional expenses rose due to campaigns like Pyeonstorang and Godsaeng Planning, operating profit increased thanks to daily sales growth and improved profit margins at existing stores. The number of stores rose by 949 from the previous year to 16,448.

According to annual sales trends of major distribution companies announced by the Ministry of Trade, Industry and Energy, last year’s offline distribution sales proportions were department stores (17.8%), convenience stores (16.2%), large discount stores (14.5%), and corporate supermarkets (2.8%). Sales proportions for department stores and convenience stores increased compared to the previous year, while those for large discount stores and corporate supermarkets decreased.

Researcher Lee Hae-ni of Eugene Investment & Securities analyzed, "The convenience store industry will grow alongside the increase in single- and two-person households," adding, "Large discount stores, corporate supermarkets (SSM), and mom-and-pop stores, which cater to consumption by households of two or more people, are likely to gradually decrease their share in distribution channels."