E-Mart Opens 1st Gas Station but With Little Enthusiasm
By Jane Han
Staff Reporter
Hypermarket giant E-Mart opened the nation's first discounter-operated gas station on the outskirts of Seoul Monday, but the question is whether the potentially loss-making business will live up to the government's expectation that a nontraditional gas retailer will trigger market competition for super-cheap prices.
The idea is that discount retailers' jump into the business will prompt small, independent gasoline stations to lower their prices, which will ultimately offer better deals to consumers.
Envisioning this effect, the government in March encouraged hypermarket chains to roll out low-priced gas stations like those operated by Wal-Mart and Costco in the United States to tame soaring fuel prices. However, the nation's top retail chains, including Shinsegae E-Mart, Lotte Mart and Homeplus, half-heartedly reviewed the feasibility, as they knew that the new business wouldn't be rewarding if they were pressured to offer bargains.
After months of preparation work, Shinsegae-owned E-mart was the first to kick off its plan, despite independent gas station owners' fierce opposition. On the first day of business, the E-Mart pump in Yongin, Gyeonggi Province, sold gas at 1,198 won per liter, markedly cheaper than the average price of 1,319 won in area stations.
``Discounter gas stations will indeed drive down prices across the board,'' Ham Jae-duk, the head of the Korea Oil Station Association (KOSA), an alliance of independent gas stations, told The Korea Times.
However, he added that the method is ``all wrong'' because the government ended up prompting price competition on the wrong end of the supply chain.
Ideally, supermarket chains should import gas independently from overseas to make the nation's four main oil suppliers ― SK Energy, GS Caltex, Hyundai Oil Bank and S-Oil ― cut their prices. But the situation is far different.
``We only have plans to open five to six pumps at maximum due to limited lot space. This means we're not a big enough player to initiate independent imports,'' said Lee Nam-gon, an E-Mart spokesman. E-Mart teamed up with SK Networks, a sister firm of the nation's No. 1 refiner SK Energy, to get the fuel supply it needs.
Refiners argue that they can't provide products at any cheaper value, all of which leaves retailers to live with tight or no margins at all. Simply put, the business, to them, is burdensome homework assigned by the government.
Lee of E-Mart said the company wasn't ruling out the possibility that it would see losses from the operation, stressing that the new gas stations are for ``customer service purposes only.''
Critics say that the long-term prospects of discounter-operated gas stations are grim because no one knows how long the discounters will endure the unattractive results. Lotte Mart and Homeplus are planning to open their pumps from next year.
In the short run, however, independent gas station owners are expected to be forced into adjusting their prices to beat out their new competitors.