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Lotte mulls ways to integrate Ministop into 7-Eleven Ministop Korea's guaranteed minimum income system can be obstacle

Translated by Kim So-in 공개 2022-01-27 07:59:17

이 기사는 2022년 01월 27일 07:58 더벨 유료페이지에 표출된 기사입니다.

Lotte Group, a preferred bidder to acquire Ministop Korea, is mulling ways to keep Ministop Korea's franchise stores to continue their operations under the new owner.

Lotte Corp, the holding company of South Korean retail giant Lotte Group, said in its regulatory filing that it has decided to acquire 100% of Ministop Korea from Japan’s Aeon Group for 313.4 billion won ($262 million) as it aims to enhance competitiveness of its retail business and generate synergies. The holding company plans to hand over the buyer status under the stock purchase agreement to its affiliate after consultation with the seller.

Korea Seven, the operator of convenience store chain 7-Eleven, is understood to be the strongest candidate to receive the status from the group. Lotte Corp will own Ministop Korea, but some market insiders said that Korea Seven will be the main operator of the convenience store business in the future.

Lotte Group also said it will integrate the two brands by replacing Ministop stores with 7-Eleven operated by Korea Seven. To do so, the convenience store chain operator needs to match different terms of franchise agreements.

According to Ministop Korea, the company has two types of franchise contracts - S-type, where store owners make investments, and ML-type, where investments are by the headquarters. In the case of S-type, the convenience store chain operator charges a store owner 23.7 million won, including the franchise fee and cost of consumables.

If a store owner chooses to sign the ML-type contract, the headquarters rents the store, but the owner has to pay a deposit of 22 million won. The owner’s total investment will reach 44.7 million won.

Ministop Korea’s profit distribution structure is similar to that of Korea Seven, where convenience store owners can receive up to 80% of profits depending on their business hours.

It is noteworthy that Ministop Korea, unlike its peers, has implemented its own guaranteed minimum income system. There is no significant difference in the initial investment and profit distribution structure, but Ministop Korea’s system is giving benefits to franchise owners by making up for a shortfall if a convenience store’s income falls below a certain amount.

In order for Korea Seven to replace Ministop’s stores with 7-Eleven's, it will have to offer benefits and conditions that are equivalent to or better than those provided by Ministop Korea.

Korea Seven will have to decide whether to introduce the guaranteed minimum income system to existing 7-Eleven franchise owners or to exclude it from contract renewal negotiations with Ministop franchise owners. Some market insiders said the introduction of the system may deteriorate Korea Seven’s profitability.

According to convenience store association data released in 2019, about 39% of 7-Eleven stores reported daily sales of less than 1.1 million won while 30% of stores reported daily sales of 1.1 million won-1.5 million won in 2018. (Reporting by Seon-ho Kim)
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