[Edaily Reporter PARK JI-AE ] CU and GS25, the top two players in South Korea’s convenience store industry, both posted second-quarter earnings that exceeded market expectations, demonstrating the success of their “qualitative growth” strategies. Analysts attribute the improved performance to a strategy of boosting the profitability of existing stores rather than engaging in aggressive store expansion.

Meanwhile, as the issuance of consumer coupons to support the economic recovery and an increase in foreign visitors to Korea combined to drive industry-wide performance, 7-Eleven and E-Mart 24 are expected to continue improving profitability by reducing losses through measures such as closing low-profit stores and strengthening product competitiveness.

CU and GS25 Post ‘Surprise Results’… Quality Growth Strategy Pays Off

BGF Retail(282330), the operator of the CU convenience store chain, which announced its earnings on the 6th, reported a second-quarter operating profit of 84.9 billion won and revenue of 2.4268 trillion won on a consolidated basis. Operating profit rose 22.3% year-over-year, while revenue increased by 6.0%. Operating profit exceeded the FnGuide Inc. consensus estimate (83.4 billion won) by 1.8% (1.5 billion won).

GS Retail(007070), the operator of the GS25 convenience store chain, which announced its earnings on the 7th, also reported results that exceeded market expectations. On a consolidated basis, operating profit reached 109.4 billion won, a 27.5% increase year-over-year, while revenue rose 6.7% to 3.1751 trillion won. Operating profit exceeded the securities industry consensus (101.3 billion won) by approximately 8%.

Strong results for both companies were driven by their core convenience store businesses. CU saw growth at existing stores accelerate despite one-time costs resulting from a logistics strike. A BGF Retail official explained, “The distribution of consumer vouchers to support economic recovery, an increase in foreign tourists visiting Korea, and strong sales of summer merchandise all contributed to the improved performance.” The official added, “In particular, as the proportion of food and processed food sales—which are more profitable than cigarettes—expanded, we saw not only an increase in revenue but also improved profitability resulting from an optimized product mix.”

GS Holdings saw a 7.5% increase in average daily sales at existing stores by focusing on strengthening its fresh food offerings and implementing a “scrap-and-build” strategy. A GS Retail official stated, “The competitiveness of existing stores has significantly improved, with sales of grocery items rising 49.6% and sales to foreign visitors increasing 67.2%,” adding, “Rather than relying on new store openings, our strategy of expanding existing stores, relocating them to prime locations, and attracting grocery shoppers appears to have driven up both customer traffic and average spending per customer.”

The convenience store industry, which saw its growth momentum slow last year, has shifted to a strategy of qualitative growth this year—focusing on enhancing the competitiveness of existing stores and improving profitability per store rather than opening new locations—and is showing signs of improved performance.

The domestic convenience store market grew rapidly due to the increase in one- and two-person households and the spread of local consumption, but it has recently entered a state of saturation as key commercial districts suitable for new store openings have dwindled. In fact, the number of convenience stores in Korea peaked at 54,893 in 2023 and decreased to 53,266 last year. Even the industry’s top two players are slowing their store expansion pace. GS25 recorded its first-ever negative growth last year, with the number of stores decreasing by 107, and CU also saw its annual net increase in stores drop significantly from 975 in 2023 to 253 last year.

Betting on ‘Specialized Stores’ for Foreigners and Grocery Shoppers… Third and Fourth-Ranked Players

Focus on

Structural Reform

The core of the qualitative growth strategy is strengthening the competitiveness of existing stores. Each company is focusing on increasing profitability per store by expanding stores specialized for foreign customers and

grocery shopping

, enhancing fresh food and private label (PB) products, and reorganizing stores to prioritize prime locations.

CU is expanding its stores specializing in foreign customers, primarily in areas such as Myeongdong, Hongdae, and Seongsu, while also strengthening its offerings of K-ramen, K-snacks, and ready-to-eat foods. GS25 is transitioning into a grocery-style convenience store by expanding its selection of fresh foods and daily necessities—centered around its “Our Neighborhood GS” concept—and by strengthening quick commerce and online-to-offline (O4O) integration.

In addition, improvements in the consumer environment this year—including the distribution of consumer coupons to support economic recovery and a record-high increase in foreign visitors to Korea—have contributed to an expansion in convenience store patronage and a recovery in performance.

In contrast, 7-Eleven and E-MART Co., Ltd. are prioritizing profitability improvements through store restructuring. Following its acquisition of Ministop, 7-Eleven is streamlining duplicate locations while aiming to improve performance by strengthening its private-label bakery and ready-to-eat food offerings. E-MART Co., Ltd. is expanding its price competitiveness through Nobland International Inc. and targeting grocery shopping demand.

The securities industry views whether Seven-Eleven will return to profitability and the extent to which E-MART Co., Ltd. will reduce its losses as key points to watch in the convenience store industry during the second half of the year.

Park Jong-ryeol, an analyst at Heungkuk Securities, said, “Over the past two years, the convenience store industry has undergone store efficiency improvements and shifted its focus from market expansion to market restructuring.” He added, “Starting this year, as the effects of restructuring—driven by an increased proportion of high-performing stores—take full effect, profitability improvements will drive earnings rather than revenue growth.”