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Thursday, May 19, 2005

Competition with 500W bean sprouts

Last month I paid attention to the government's plans to alleviate the regulations concerning the opening of mammoth retail establishments and the movements of the small retailer associations against the proposed legislation. After quoting figures from the Korea Federation of Small and Medium Business that during the last four years the large-scale discount stores have grown by 100% while 20% of small and medium businesses have closed their doors, Ohmynews goes to visit one "supermarket" keeper in Goyang, Gyeonggi province: how does a 10 p'yông (pyeong, 33 sqm) survive against the big discount stores.

The supermarket introduced in the article is a Kosa-Mart (코사마트) franchise belonging to the 한국슈퍼마켓 협동조합연합회, which in English would be something like Korean Supermarket Association (can't find no homepage!). The man of the shopkeeper couple used to be a salaryman until 2003, when he decided to quit his company, which was apparently in the midst of legal proceedings. "I cried a lot, and we seemed to have no future," the woman told of the time when the man quit his job and they decided to open the store.

What the story tells about the couple and their shop is familiar to me from my own data on a couple of such places: taking care of the shop for 17 hours a day - and in this case the man goes to shop for fresh veggies in the wholesale market from where he comes back at 4 am. (Even though that I know that Koreans and especially keepers of small businesses can do wonders in reducing their sleep, I'd still think that it's the woman who opens the shop in the morning. Does she prepare the breakfast before that? She'd have to...)
One thing this small shop has in competing with retail giants is that it makes its purchases through the local association of supermarkets, which makes it kind of a cooperative (perhaps franchise that I used above is a wrong term). With the help of the local cooperative association the shop also has a real-time checks on its sales and stock. The shopkeeper couple points out that it's especially due to the association that they are able to survive in a situation where there are several large retailers in proximity. (There are many of those especially in these so-called new towns in the Gyeonggi province around Seoul.)
The difference of fees for small and large retailers is something I haven't yet tried to find out about.
"The government is telling that they're going to help the self-employed and small and medium companies, but supermarket keepers like us and the large retailes have a different starting point. All the expenses are too disfavorable for us. Large discount stores pay only 1.5% fee for the use of credit card, but we pay 2.5%. Use of credit card is growing, but when the commission is 2.5%, supermarkets want to avoid them, right?"
Alcohol is another example. Large discount stores and we pay a different tax (segûm) for alcohol we purchase. We do need even a small margin, but we lose in price competition because we can't sell cheap."

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Comments to note "Competition with 500W bean sprouts" (Comments to posts older than 14 days are moderated)

<Blogger Sewing> said on 19.5.05 : 

Hi, Antti:

I thought I'd do some digging for you, so here goes:

The closest thing to a web site for KOSA Mart is http://www.barokosa.com, which appears to be an online resource for the association's members.

There's a link on the home page to http://www.kosamart.net, which is supposed to be the association's homepage, but it's a dead link.

And the association has an e-retailing arm, whose home page is at http://www.e-kosamart.com/.

So now I've finally figured out Korail's reservation web site name (barota.com): it must come from 바로 타, as in 기차를 바로 예약하고 타다. "barokosa".com is supposed to mean 바로 코사 which isn't grammatically correct, but I suppose suggests 코사를 바로 찾다 or some such thing.

<Blogger kotaji> said on 20.5.05 : 

Antti, I meant to comment when you posted about this before, so here goes now...

This whole situation is quite resonant to someone living in Britain (probably Finland too, I don't know). There has been much in the news here about our super-retailer Tesco which is now so dominant and making such huge profits (£2 billion) that it spawned the frontpage newspaper headline 'The supermarket that ate Britain'. It was in the Independent, but they have pay access so here're the highlights:

Tesco's worldwide sales are now worth pounds 37.1bn annually

Every week, Tesco gains 10 million more customers globally

One in every eight pounds spent in the UK is spent at Tesco

At any one time British farms are rearing 18 million chickens to be sold in Tesco stores

The company has 1,779 stores across the UK

20 new hypermarkets are planned next year

Tesco also has 586 stores overseas, and operates in 13 countries

Interestingly Tesco has quite a foothold in the Korean market with their HomePlus Samsung joint venture (unless they sold it). To be honest, I don't want to get too teleological on you, but I think this is part of the current evolutionary path of capitalism. We now have high streets in Britain that are either full of boarded up shops or completely stacked with big chain stores.

However, I do think that there will always be niches for small retailers - the places that are not profitable for the behemoths and where economies of scale don't work. A good example in Britain is the classic 'corner shop' usually run by South Asians (like the one 50 metres from my front door). Although the big supermarkets are moving into the mini-market market with their 'compact' shops, I don't think they'll be able to go too small. Abother interesting phenomenon it seems to me is the tendency for small retailers to survive or even thrive in poor areas. In the areas near to me with large and often poor immigrant populations there are dozens of discount meat and grocery shops which always seem busy while the supermarkets are relatively quiet.

Apologies for going on a bit...

<Blogger Sewing> said on 20.5.05 : 

To take this slightly off-topic:

Tesco! I had the dubious honour of shopping at what is claimed to be the largest one in the UK, in Cambridge. That was the first time I encountered automated tills, speaking to me in a firm-but-polite highly RP accent. That's one thing I have definitely not yet seen back here in North America.

<Blogger kotaji> said on 20.5.05 : 

Yes, those machines freak me out somewhat.

<Blogger kotaji> said on 20.5.05 : 

I'd rather be attempting to communicate with a grumpy ajossi any day of the week...

<Blogger Sewing> said on 20.5.05 : 

(Delete, rewrite, delete, rewrite...)

Amen to that!

"Please scan the next item..."

On a scale of high Oxbridgeness, I much preferred the automated announcements in Waterloo Station.

Sorry, 훈장님, for taking this off topic....

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