US-originated convenience store chain 7-Eleven is speeding up to complete the ongoing conversion of Ministop stores by the end of next year as the Korean operator owned by Lotte Group aims to cement its market position among the nation’s top three convenience store operators, according to Korea Seven on Wednesday.
Lotte CVS 711, a Lotte affiliate, recently transferred an additional 20.5 billion won ($16 million) to Korea Seven, the local operator of 7-Eleven stores, to expedite switching Ministop stores nationwide. The company acquired Ministop Korea from Japan’s Aeon Group in a 313.3-billion-won deal in January.
"With the assets, the company is expecting to accelerate the conversion of the two brands," an official from Korea Seven told The Korea Herald.
"The plan is to convert 100 percent of Ministop stores by the end of 2023," he added.
As of November, 850 stores have been switched from Ministop to 7-Eleven. The number accounts for 32.6 percent of the total 2,600 Ministops in the country.
"The convenience store industry is heavily affected by 'economies of scale.' Increasing the sheer amount of stores, is the most important thing right now," the official said.
The official said by increasing the sheer number of stores, convenience stores can secure an advantageous position in negotiation with suppliers, and reduce costs required for the production of convenience store's exclusive merchandise. Despite efforts, however, data showed Korea Seven is hemorrhaging more than seeing an increase in revenue with the recent conversions.
According to its quarterly earnings, Korea Seven's operating profit fell 18.6 percent from 8.6 billion won to 7 billion won.
Additional costs incurred during the convergence such as replacing signboards, renovating store interior design and expansion of marketing were pinpointed as reasons for its decline in profits. In fact, Korea Seven's sales and management costs had increased 42 percent to 317.2 billion won in the third quarter, according to the report.
The brand royalty rates that have to be given to the headquarters in the United States and Japan were also cited as factors driving down Korean sales.
Korea Seven had paid an accumulated fee of 23.8 billion won and 2.5 billion won to its headquarters in the US and Japan, respectively, as brand royalty rates for 7-Eleven and Ministop during the third quarter of this year.
Until last year, the nation’s convenience store industry was dominated by the top two players, CU with 15,855 stores and GS25 with 15,499 stores, with 7-Eleven remaining as a distant No. 3 with 11,173 stores. By acquiring some 2,600 Ministop stores, 7-Eleven is expected to compete head-on with its bigger rivals.