According to the Ministry of Trade, Industry and Energy on the 16th, the SSM industry’s sales in the first half of this year decreased by 6.6% compared to the same period last year. SSM sales have been contracting for one consecutive year since the third quarter of last year. This is due to sluggish sales of food products, which account for about 90% of SSM revenue. In the first half of this year, SSM food sales also fell by 10.6%. Consequently, sales per store decreased by 11.0% compared to the same period last year.
The rapid growth of e-commerce companies is cited as the primary reason for the SSM industry’s decline. Government regulations are also playing a role. Under the current Distribution Industry Development Act, the SSM industry is subject to the same regulations as large supermarkets, including restrictions on late-night operating hours, mandatory closures twice a month, and a ban on opening new stores within traditional commercial preservation zones.
The SSM industry has set out to find a breakthrough by expanding its store network through franchisees. Compared to company-owned stores, franchises reduce the company’s burden of investment costs for new store openings and offer a relative advantage in securing locations. As the store network becomes denser, it can also maximize synergies with the “quick commerce” services that the SSM industry is expanding.
SSMs are recognized for their strength in being closer to residential areas than large supermarkets, while offering a wider selection of fresh foods and grocery items than convenience stores. SSMs are expanding their quick-commerce services by utilizing existing stores as delivery hubs without the need for separate large-scale distribution centers.
#GS Holdings is the most aggressive in expanding its franchise network within the SSM industry. As of last August, GS Holdings operated 500 franchise stores. Franchise stores account for 83% of its total stores (603). GS Holdings aims to increase the proportion of franchise stores to 90% by the end of the year.
GS Holdings is implementing a two-track store expansion strategy targeting both older and newer urban areas. In older downtown commercial districts, the company is focusing on securing stable sales by converting independent supermarkets in prime locations into GS Holdings stores. In newer urban areas, it is concentrating on securing key commercial districts through rapid new store openings and attracting young customers, such as newlyweds.
GS Holdings’ highly sophisticated chain operations (store management system) are also driving its franchise expansion. Previously, stores processed and packaged fresh foods on-site for sale. However, the company has streamlined operations by shifting to a model where products are pre-processed at a central facility and only sold at the store.
E-MART Co., Ltd.(139480) Everyday is also expanding its franchise network and gradually increasing its share of the business. As of last August, E-MART Co., Ltd. had 59 franchise stores, accounting for approximately 24% of its total. This represents a 10 percentage point (p) increase compared to the 14% share at the end of last year (35 franchise stores).
E-MART Co., Ltd. is securing franchisees by emphasizing the supply of competitive products, driven by increased purchasing power resulting from consolidated procurement with E-MART Co., Ltd. E-MART Co., Ltd. is also converting small-format stores among its existing company-owned locations into franchises, taking into comprehensive consideration the specific conditions of each store.
Lotte Super is also strengthening its franchise business model. Lotte Super plans to expand new store openings centered on franchisees through a stable operating system and customized product supply. As of last August, Lotte Super had 119 franchise stores, accounting for approximately 38% of its total. Additionally, Homeplus Express, which is now part of NS Home Shopping, is also pursuing the expansion of its franchise network.
An industry official in the SSM sector stated, “From the SSM perspective, expanding the franchise network is the best strategy to achieve two goals—scale growth and improved profitability—within the regulatory framework,” adding, “As synergies with e-commerce continue to emerge, competition among SSMs to expand their franchise networks will become even more intense.”
