[Coupang Changed the Distribution Map] 'Food Sampling' Impossible at Coupang, but Latest Weapon at Large Marts

②Large Supermarkets Strive to Win Back Customers

The Era of 'Their Own League' in Marts Is Over
Introducing the Concept of 'Consumer Time Occupancy'
Attempting to Reclaim Ground Lost to Online
Differentiation Strategies Fall Short of Expectations
Calls for Amendments to the Distribution Industry Act

"The rise of the online market does not mean that offline is unimportant. The future of offline lies in fanatical focus on customers and spatial innovation through research."

Jung Yong-jin, Vice Chairman of Shinsegae Group, said this when he visited the Emart Yeonsu branch last May. He subtly emphasized the need for change for offline stores to survive while competing with online. His words were not merely about re-evaluating the value of offline stores in a distribution market environment reorganized around online. They also offered a glimpse into the reality faced by offline stores amid the wave of change brought by Coupang over the past decade.

In the past, large discount stores played in their "own league." The three major discount stores?Lotte Mart, Emart, and Homeplus?were each other's competitors. But that is no longer the case. None of the large discount stores now see only each other as competitors. Their biggest competitor is the online market, represented by Coupang. This is why the industry often talks about "regaining customers lost to online during the COVID-19 period."

Consumers are looking at products at the 'Mega Food Market 2.0' Gangdong branch steakhouse recently opened by Homeplus.
[Photo by Homeplus]

Renovating Stores and Gathering Loyal Customers

The growth of online platforms like Coupang has changed the form of large discount stores. Whereas they used to be simple spaces for selling goods, they have now evolved into new types of stores that "occupy consumers' time." This is the result of large discount stores' judgment that they must break away from traditional methods to attract consumers who have experienced convenience through online markets. The three major discount stores accelerated store renovations after COVID-19, with about 80 stores completed by this year. Renovation work is still ongoing in many places, so the number is expected to increase further.

Large discount stores commonly focus their renovations on food-centered "experiences." This differentiation strategy is based on the fact that seeing and tasting food directly is an area that online cannot replicate. A representative example is Homeplus's "Mega Food Market." More than half of the renovated store area is dedicated to food sections, prominently featuring fresh and ready-to-eat foods. A Homeplus official said, "To differentiate from e-commerce, we judged that large discount stores should specialize in food, which they do best, to draw customers back to the stores."

Strengthening membership programs is also part of these large discount stores' customer attraction strategies. Examples include Shinsegae Group's "Shinsegae Universe Club," launched in June, and Lotte Mart's revamped "Snow Point" this year. Like Coupang's "Wow Membership," these programs aim to maximize the "lock-in effect," making customers accustomed to specific services so they do not switch to others. However, unlike Coupang's Wow Membership introduced in 2018, these membership programs have been in place for a shorter time, so it may take some time to prove their direct effectiveness.

At the Shinsegae Group 'Shinsegae Universe Festival' held at COEX in Gangnam-gu, Seoul, Lee In-young, CEO of SSG.com (from left), Kang Hee-seok, CEO of E-Mart, and Jeon Hang-il, CEO of Gmarket, are listening to questions from the press.
[Photo by Yonhap News]

Still a Tough Competitive Landscape... Calls for Regulatory Relaxation

It is still too early to say that these differentiation strategies by large discount stores have been fully effective. Although the domestic e-commerce market growth, which showed double-digit quarterly increases during the COVID-19 period, has somewhat slowed, it still remains at a significant level of around 7% this year. Especially Coupang is still doing well, with expectations of turning a profit for the first time this year. Looking at the performance of large discount stores, Lotte Mart's sales in Q2 this year were 1.422 trillion won, down 1.3% from the same period last year, and it recorded an operating loss of 3 billion won. Emart also posted an operating loss of 53 billion won in Q2 this year, and Homeplus had an operating loss of 260.2 billion won last year.

Amid Coupang's rise and the downturn of offline stores, voices have recently emerged in the distribution industry calling for amendments to the Large-scale Distribution Business Act, which has long restricted large discount stores. While large discount stores have been subject to regulations such as mandatory closing days under the act, e-commerce companies like Coupang have grown in a greenhouse environment. Hong Dae-sik, President of the Korean Competition Law Association, said at a related seminar last month, "Since the enforcement of the Large-scale Distribution Business Act, large discount stores subject to the law have been like having sandbags tied to them," adding, "As distribution channels diversify online and consumer purchasing behaviors change, the Large-scale Distribution Business Act needs to be revised."