E-mart enters 'quick commerce' market despite possible loss

A delivery worker receives items at E-mart's convenience store E-mart 24 in Seoul, on April 7. Courtesy of E-mart 24

By Kim Jae-heun

The country's largest retailer E-mart has launched a quick commerce service called SSG Go starting Thursday. It is a late start considering that other e-commerce firms like Woowa Brothers and Coupang are leading the market after introducing the service last year. The competition has intensified as various players such as convenience stores, supermarkets and food franchise businesses also offer the service, which means E-mart has a bigger chance of losing money, but the food retailer seems to have no other choice.

Quick commerce refers to delivery services that take less than an hour from order to the completion of the delivery. The market has huge growth potential, with its size expected to reach 5 trillion won ($4.07 billion) in the next three years.

However, it requires huge investments in order to establish fulfillment centers while its profitability is relatively low due to too many competitors already in the market.

Nevertheless, E-mart has to start the service as the transition to online shopping is a global trend that can't be avoided. After the emergence of e-commerce firms like Coupang and Kurly, E-mart's operating profit margin declined to 1.5 percent in 2021 from 5 percent in 2017. As E-mart's retail stores are losing steam with regards to growth, the company made a necessary choice in order to survive.

Hanwha Investment & Securities predicted that as E-mart expands its retail business online, its operating profit will plunge by 30 percent year-on-year, due to the increase in the deficit of its e-commerce affiliate SSG.com.

E-commerce firms are competing against each another by offering cheaper prices to consumers, making it hard for any operator to increase the prices of its products. In Korea, e-commerce firms have to build more distribution centers to deliver online orders faster. This year, E-mart plans to spend 750 billion won to bolster its logistics and delivery system, which is up 64.8 percent compared to what it invested in 2021.

E-mart has decided to test its quick commerce service in limited districts of Seoul first and then expand the business throughout the capital. However, it did not confirm when and where its SSG GO service will be available after the trial period.

“In line with growing customer demand for faster delivery, we have launched a test version of quick commerce in limited areas of Gangnam. For the time being, the service will be available as a test version,” an E-mart official said.