Domestic large supermarkets are increasing specialized grocery stores to find new avenues amid the recession. Emart, Lotte Mart, and Homeplus have recently launched stores selling grocery items at affordable prices throughout the year, aiming for a rebound in performance.
According to the distribution industry on the 4th, Emart will open its second Food Market location in Godeok-dong, Gangdong-gu, Seoul, during the first half of this year. Emart opened its first specialized grocery store, Food Market No. 1, in Suseong-gu, Daegu, last December, receiving positive feedback. The total area of this store is about 1,200 pyeong, with fresh and processed food accounting for three-quarters (856 pyeong) of the space.
The model is a representative example of the 'new type of grocery specialized hard discount store (HDS),' as noted by Emart CEO Han Chae-yang during the shareholders' meeting last April.
HDS is a store that reduces the number of items handled while cutting costs through bulk purchasing. It also minimizes operating expenses, offering products at prices 20% to 30% lower than before. While still relatively unfamiliar in South Korea, Aldi and Lidl are representative HDS in the U.S. and Europe, dominating the grocery market.
An Emart official said, 'The share of products supplied through direct purchases from our logistics centers has increased to over 80%,' adding, 'We offer products at prices 15% to 20% lower than general food stores.'
According to Emart, customer numbers at the Suseong Food Market have increased by more than 30% compared to nearby stores in the three months since its opening. Leveraging the success of the first location, Emart plans to open the second Food Market in Godeok, strategically situated near an apartment complex with over 100,000 households. This store will also represent itself as a 'grocery discount store' offering affordable grocery items throughout the year.
Lotte Mart introduced its first grocery specialty store brand 'Grand Grocery' in Eunpyeong-gu, Seoul, at the end of last year. Subsequently, it converted its corporate supermarket (SSM) at Dogok into Grand Grocery.
Grand Grocery has reduced product prices by increasing the share of its own low-cost private brand (PB) products. The PB share among the total products is over 30%. Additionally, it has implemented an artificial intelligence (AI)-based demand forecasting system to enhance inventory management efficiency and reduce food waste.
Lotte Mart's newly opened Cheonho store, its first in six years, is also centered around the grocery section. Plans are in place to renovate the Guri store in Gyeonggi Province into a grocery specialty store during the first half of the year.
Homeplus has been leading efforts to strengthen its grocery offerings since introducing the 'Mega Food Market' concept in 2022. Homeplus has enhanced its relationships with major producers across the nation to establish a producer-complete process. Currently, it has direct transaction contracts with about 300 partners, supplying packaged products directly to stores, thereby minimizing the distribution process by at least one stage and reducing expenses.
Some large supermarkets are also incorporating their expertise in the food wholesale business into grocery store operations. Emart is leveraging the wholesale business experience of its subsidiary Emart Everyday, while Lotte Mart is utilizing the expertise of Lotte GFR (formerly the food division of Lotte Department Store) to enhance price competitiveness.
Despite inflation and high interest rates, food maintains a strong essential nature, leading to steady demand. Major global supermarkets are also responding quickly to maintain price competitiveness in the grocery sector amid inflation. In September of last year, Walmart announced plans to convert 65% of its stores into grocery sections.
Japan's largest retail company, Aeon Group, is also participating in the changes. According to the Nihon Keizai Shimbun, Aeon has expanded the average grocery store area of 10 large stores in the metropolitan area by 20% since April 2023, particularly increasing the sections for fresh and ready-to-eat foods.
According to last year's revenue trends released by the Ministry of Trade, Industry and Energy, total sales for large supermarkets decreased by 0.8% compared to the previous year. In particular, non-food sales, including electronics, clothing and miscellaneous goods, fell by 7.9%. In contrast, food sales increased by 2.3%.
Consultant Kim So-hyung noted, 'Until recently, large supermarkets targeted floating populations by entering large shopping malls. Shopping malls need to secure large spaces and include various brands, but HDS can renew small to medium-sized stores, making it a favorable model for opening stores in multiple locations.'