GS Retail's e-commerce business under question

A delivery driver holds a bag containing items ordered from GS Retail's online mall in front of a GS25 convenience store in Seoul, in this photo dated June 21, 2021. Yonhap

By Kim Jae-heun

GS Retail, which operates one of the largest convenience store chains here, has come under intense scrutiny as its e-commerce business strategy has failed to generate profits in the rapidly growing retail sector, according to market analysts Monday.

Last year, the company acquired Yogiyo, the country's second-largest food delivery platform, to focus on “quick commerce” by generating synergy with its vast network of 15,000 GS25 convenience stores, but the firm's bottom line has deteriorated.

GS Retail's convenience store business achieved an operating profit of 31.6 billion won ($26.37 million) in the fourth quarter of 2021, down 15.5 percent from a year earlier.

“Our convenience stores' operating profit fell due to increased advertising costs and one-off payments for marketing. Also, the number of visitors to the stores decreased as the Omicron variant spread rapidly in the country,” a GS Retail official said.

But its money losing e-commerce business was the biggest culprit behind GS Retail's deteriorating bottom line. The firm posted an operating loss of 27 billion won from GS Fresh Mall, Dali Salda and Simply Cook, which respectively sell daily necessities, organic food and meal-kit products online. Including losses from other online businesses, the figure reached 70 billion won in 2021.

Unlike its competitors Shinsegae and Lotte Shopping, which already combined their online malls and mobile platforms into one service in 2020, GS Retail has only just begun unifying its various retail channels.

As the retail company was a late entrant to the mergers and acquisitions market last year, it wants to prepare well before launching a combined online mall.

It spent 1 trillion won, together with two local private equity funds, to take over Yogiyo last August and invested 550 billion won in acquiring 13 other firms including TeamFresh, Kakao Mobility and Cookat. The company wants to put all of its food-related businesses under one management structure and introduce a quick commerce platform, where customers can receive their orders in less than an hour.

In particular, GS Retail hopes to create synergy between its convenience stores, supermarkets and Yogiyo by utilizing its 15,000 stores across the country as a logistics base for 8 million users on the food delivery platform. This will give the company a shot at the coveted No.1 position in the market currently led by Baedal Minjok.

“GS Retail's sluggish performance in its main convenience store business has been protracted longer than expected. Here, the cost burden of the new business has been added to enlarge the company's operating loss,” Shinhan Investment researcher Cho Sang-hoon said.

“In the short term, the company needs to diversify its products sold at convenience stores to reduce the gap with its competitors. In the long run, GS Retail needs to create synergy between its affiliates through the e-commerce channels that it has been preparing since last year.”