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| Iranians pass a CU convenience store in Tehran in this November 2017 file photo. / Courtesy of BGF Retail |
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| BGF Group Chairman Hong Suk-jo. |
BGF Retail will stop doing business with its Iranian partner because of U.S. sanctions against the Middle Eastern country, according to the operator of the CU convenience store chain Friday.
The retailer said it terminated a master franchise contract recently with Iranian retailer Entekhab Investment Development Group in 2017 because Entekhab did not pay the franchise fee for a license to operate CU convenience stores in Iran.
"We took the first step toward the global market in Iran, but our partner, Entekhab, was affected by the recent economic sanctions, so it has become difficult to continue the franchise business," a BGF Retail official said. "We had no choice but to terminate the contract with Entekhab.
"Although we sent our employees to Iran to teach about running convenience stores, we did not make any direct investments. It was a good opportunity for us to learn a lesson about overseas expansion."
In July 2017, BGF Retail formed a partnership with IdehEntekhabIranian Chain Stores, a new subsidiary of Entekhab, to expand its presence in Iran, the most populous Middle Eastern nation with high growth potential at the time.
The Korean firm opened its first CU convenience store in Iran in November that year, and CU became Korea's first convenience store chain to set up an overseas outlet.
Starting from a Sadeghiyt store in Tehran, BGF Retail opened nine convenience stores there.
BGF Retail and Entekhab also aimed to open 1,000 stores in Iran by 2020.
However, the Iranian franchisee failed to pay the Korean franchiser the first year's royalties worth 3 million euros ($3.4 million).
"All the signs reading CU were taken away from the stores in Iran after the contract termination," the BGF Retail official said. "We wrote off the 3 million euros."
Against this backdrop, BGF Retail posted 1.5 trillion won ($1.3 billion) in sales and 65.5 billion won in operating profit in the third quarter of this year.
Although the company did not come up with a year-on-year rate, citing the demerger of a holding company in November 2017, IBK Securities said sales fell 1.2 percent year-on-year, while operating profit fell 19.5 percent.
BGF Retail said it would focus on its business in Mongolia for a while.
After signing a master franchise contract with Mongolia's Central Express in April, BGF Retail opened six CU convenience stores in Ulaanbaatar in August.
Mongolia has 10 CU convenience stores, and Central Express aims to open more than 200 CU stores there within the next five years.
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