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Business trends

South Korean convenience stores move into Vietnam, Iran

GS Retail and BGF hope new ventures will offset sluggish local market

Cho Yoon-sung, sixth from right in the first row, head of GS Retail's convenient store department, shakes hands with SonKim Group Chairman Nguyen Hoang Tuan after signing a contract to launch a joint venture in Vietnam. (Photo provided by GS Retail)

SEOUL -- South Korea's two largest convenient store operators are reaching into Vietnam and Iran, seeking to exploit fast-rising consumer power in the emerging countries amid growing competition in the domestic markets.

GS Retail, which runs the chain of convenience stores named GS25, said that it signed last week with SonKim Group in Vietnam to launch a joint venture in the Southeast Asian nation. GS will invest for a 30% stake in the company while Sonkim will own the rest. GS declined to disclose the investment amount.

"The consuming power of Vietnamese people is rising sharply," said the company in a statement. "We expect the market will expand considerably as its economy and income grow."

The signing came two weeks after its rival BGF Retail said that it signed a 3 million euro ($3.54 million) franchise contract with Iran's Entekhap Investment Development Group. BGF said that it opted for a master franchise contract which means it will be paid stable royalties.

BGF started as a local partner of Japanese convenience store chain FamilyMart in 1994, but launched its own brand CU in 2012. Chairman Hong Seok-jo and his family owns a 55.06% stake in the company. Hong is a brother of Hong Ra-hee, wife of Samsung Electronics Chairman Lee Kun-hee.

GS said it would open its first GS25 store in Ho Chi Minh City by the end of this year after signing a royalty contact with the joint venture. The company said it expected to make tens of billions won every year through royalties and dividends from its stake in the joint venture.

The two retailers' aggressive overseas strategy helps them to combat a sluggish domestic market. The average operating profit at per franchised convenience store stood at just 18.6 million won ($16,523) in 2015, down 17% from a year ago, according to data released by the Statistics Korea last week. The number of convenience stores, however, rose 12.7% year-on-year to 29,628 at the end of 2015.

GS Retail shares rose 2.38% to 49,550 won on Tuesday, rebounding from 1.7% drop in the two previous sessions. BGF Retail slipped 0.54% to 91,900 won, extending its losses for three consecutive days. The benchmark KOSPI inched up 0.84% to 2,422.96.

SonKim is one of the top three lingerie and underwear retailers in Vietnam. It is also involved in real estate and media since 2007.

Nikkei staff writer Kim Dung Tong inHo Chi MinhCitycontributed to this story.

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