South Korea's convenience store operators are ramping up efforts to tap into overseas markets amid fierce competition at home, industry watchers said Saturday.
GS Retail Co., a major convenience store chain operator, said earlier this week it signed an agreement with a Vietnamese company to set up a joint venture with a plan to open the first GS25 store in Ho Chi Minh City this year.
"The convenience store industry in Vietnam is still very young with only one or two thousand stores in operation," a GS Retail official said. "More than half of the country's population are aged 35 or under as of 2016, which makes the Vietnamese market all the more attractive to begin our overseas expansion."
GS Retail said it plans to open 2,500 stores in the Southeast Asian country in the next 10 years.
The announcement came shortly after BGF Retail Co., the operator of the country's largest convenience store chain CU, signed a franchise deal with an Iranian firm last month, marking the first overseas push by a local convenience store company.
The companies began looking abroad as the domestic market, dominated by three chains -- CU, GS25 and 7-Eleven -- is becoming saturated with too many stores, industry watchers said.
According to data released by Statistics Korea, the combined operating profit of franchised convenience stores stood at 550 billion won (US$488 million) in 2015, down 6.5 percent from 588 billion won tallied the previous year.
The convenience store business was the only sector among franchise businesses that saw its combined operating profit decline during the cited period, according to the data.
The drop is attributed to the growing number of new stores in an already crowded market.
The number of convenience stores rose 12.7 percent on-year to 29,628 at the end of 2015, backed by the fast-growing number of single-person households, the data showed.
Last month, retail giant Shinsegae, which joined the convenience store market in 2014 with an acquisition, said it will invest 300 billion won over the next three years to expand its presence that will further heat up competition.
GS Retail said Wednesday its second-quarter net profit stood at 41.2 billion won on a consolidated basis, down 17.8 percent from 50 billion won posted a year earlier. Its operating profit also plunged 21.7 percent to 53.1 billion won over the cited period, despite a 12.8 percent increase in its sales.
"GS Retail's convenience store business has been leading the overall growth of the company, but the downturn will likely continue for a while considering the rapid increase in the number of new outlets and relevant costs that will follow," said Lee Joon-ki, an analyst at Mirae Asset Daewoo Co.
BGF Retail's earnings report will not be available until Monday. (Yonhap)