The debate over the Distribution Industry Development Act is resurfacing. As criticism grows that restrictions on business hours and mandatory closure days for big-box retailers do not fit a retail landscape reorganized around online channels, discussions on deregulation, including allowing dawn delivery, are gaining momentum. This paper examines the market changes created by the Distribution Industry Development Act and their flip side, and seeks regulatory directions and win-win solutions suited to the changed retail environment. [Editor's note]
Mandatory closure days for big-box retailers, introduced under the banner of protecting traditional markets, are drawing criticism for failing to steer consumers toward those markets. When marts close on weekends, consumers turn on online shopping applications (apps) such as Coupang or head to food material marts that are not regulated, instead of going to markets. Experts noted that regulations tethered only to offline have entrenched structural negative growth.
Under the Distribution Industry Development Act (hereafter the DID Act), revised in 2013, big-box retailers and super supermarkets (SSM) must close twice a month and face business restrictions from midnight to 10 a.m. Mandatory closure days are set by local government ordinance, but the practice has been to designate the second and fourth Sundays each month, considering traditional market days and administrative convenience. Since 2023, some local governments have switched mandatory closure days to Wednesdays and other days.
The justification for the DID Act, which the ruling Democratic Party of Korea led in adopting, is the assumption that "if large retail channels are restricted, consumers will move to traditional markets." In reality, however, use of traditional markets has not clearly increased even on mandatory closure days.
◇ Inflow to traditional markets is minimal… grocery shopping demand shifts online
According to the industry on the 13th, the Korea Economic Research Institute analyzed Rural Development Administration data from 2022, before weekday mandatory closures were introduced, and found that the average combined amount spent by 1,500 households in the Seoul metropolitan area on groceries at traditional markets every Sunday was lower on big-box mandatory closure days (6.1 million won) than on business days (6.3 million won).
Grocery shopping demand stemming from big-box closures appears to have been absorbed by online e-commerce platforms with strong grocery delivery capabilities, such as Coupang. The average combined online grocery purchase amount on Sundays when big-box retailers were open was 86.4 million won, but it rose to 87.7 million won on mandatory closure days. In effect, the policy was more effective at boosting online players led by Coupang than at reviving traditional markets, its stated objective.
The retail industry views big-box retailers and traditional markets not as competitors but as complementary players tied to the same offline ecosystem. A retail industry official said, "Consumers typically visit big-box retailers two or three times a month for bulk grocery or daily necessities and manufactured goods, while traditional markets are often used for frequent, small purchases of fresh food or side dishes," adding, "Because consumers have different purposes for the two channels, restricting big-box operations leads to consumption flowing online."
The standing of big-box retailers is steadily narrowing. According to the Ministry of Trade, Industry and Resources, last year only big-box retailers saw sales fall, by 4.2 percent, among all retail sectors. Except for January and October, which included Lunar New Year and Chuseok, they posted negative growth every month. The share of big-box retailers in total retail sales last year also fell to 9.8 percent, dropping below 10 percent for the first time.
Issues of regulatory equity surrounding SSM are also coming to the fore. According to the industry, franchise stores run by individual owners account for 49 percent of 1,464 SSM outlets nationwide. GS The Fresh, the top player, has a franchise ratio above 80 percent. Although franchise owners are effectively small business owners, they are subject to the same business hour restrictions and mandatory closure regulations as large corporations' directly operated stores.
◇ "Food material marts" in a regulatory blind spot… rapid growth outside mandatory closures
While mandatory closure regulations have piled up damage for big-box retailers and SSM, food material marts with similar operating models have sidestepped the rules and scaled up quickly. Although not a legal business category name, food material marts generally refers to stores with floor areas of at least 1,000 ㎥ and under 3,000 ㎥ that are not affiliated with large discount chains.
Food material marts originally started as B2B (business-to-business) wholesale-style stores targeting restaurants, catering companies, and the self-employed. Recently, however, the share of general consumers has grown, effectively making them "neighborhood big-box retailers." These companies keep store areas under 3,000㎡ to avoid being classified as "large-scale stores." This is to escape mandatory closure and business hour restrictions that apply to big-box retailers and SSM.
Because of the nature of the category, the number of food material marts is not captured in government statistics, but a 2020 government survey identified 1,803. The industry estimates the number of food material mart outlets, which have actively exploited blind spots in the DID Act, has now surpassed 2,000.
Operators of food material marts that avoided regulation are showing upward-sloping results. According to Financial Supervisory Service electronic disclosures, Jangbogo Food Material Mart's sales rose from 181.8 billion won in 2014 to 450.3 billion won in 2024, up 147.7 percent in about 10 years. Over the same period, Segyero Mart's sales grew from 74.3 billion won to 125.0 billion won, up 68.2 percent. Foodist, which operates Food Material King Mart, saw sales (per audit report) increase from 454.5 billion won in 2020 to 882.1 billion won in 2024, up 94.1 percent.
◇ Only dawn delivery to be loosened while mandatory closures remain… "fundamental overhaul needed"
Recently, Democratic Party lawmaker Kim Dong-a introduced a DID Act amendment to allow dawn delivery by big-box retailers and SSM. A subsequent high-level party-government-presidential office council said it would push the amendment. However, the ruling party's bill did not include provisions related to mandatory closure regulations for offline stores.
Experts worry that, in a situation where consumer behavior has already shifted to online, regulations that bind only offline could entrench structural negative growth that merely further activates online shopping.
Yu Min-hee, a research fellow at the Korea Economic Research Institute, said, "If the effect of mandatory closure policies is minimal, they should be boldly improved or alternatives sought," adding, "A retail ecosystem is needed in which online, big-box retailers, and traditional markets can grow together."
Lee Eun-hee, an emeritus professor in the Department of Consumer Science at Inha University, said, "The offline retail industry has been shrinking due to unbalanced regulations that do not match the times," adding, "To achieve the purpose of revising the DID Act, a fundamental overhaul that includes mandatory closure regulations is necessary."