What are SSMs?
SSM is short for Super Supermarket. This term applies to supermarket enterprises that are managed by major corporations. These enterprises sell grocery products such as vegetables and fish unlike smaller convenience stores. SSMs are miniature versions of large scale discount stores such as E-MART and Home plus, and there are very few differences in distribution systems between the two. SSMs distribute products to their branches through national distribution networks, so consumers can buy their products at much lower prices. There are many SSMs such as “Home plus express” which is part of Samsung Tesco, “LOTTE My super” from LOTTE Shopping, “GS Supermarket” from GS retail and “emart everyday” from E-MART.
Summary of the SSM crisis
Large distribution companies have expanded their number of discount stores nationally since the government opened the circulation market in 1966. As a result, small merchants and local commercial enterprises which include traditional markets and general supermarkets began to collapse. However, the large distribution companies were not satisfied with large scale discount stores, and they started opening SSMs in local areas. The number of SSMs has increased from about 500 in 2005 to around 1,000 in 2010. Local merchants in Ongnyeon-dong, Yeonsu-gu, Incheon proposed a petition system to protect small businesses in response to Home plus express in their areas that were scheduled to open on July 16th, 2009. This petition system allows small businesses to request government intervention to block the opening of SSMs in their areas for up to three months if it can be determined that the opening of one of these stores will destroy their businesses. About 50 local merchants and members of civil groups held a ceremony to declare their struggle against the SSMs. They set up a tent and started a sit-in demonstration and established with a committee to plan emergency measures regarding the problem in Ongnyeon-dong and a committee to plan measures to save small businesses in Incheon near the intended locations of the proposed SSMs. The Home plus express openings were interrupted momentarily, but they opened in the end in spite of the new law. After that incident, the conflict between SSMs and local merchants has intensified in controversy. The ability of large corporations to get around the new law has caused increased belief on the part of small merchants that there is really nothing they can do. Many local merchants believe this new law will extend the reach of SSMs and further threaten their livelihoods. The amendments to the ordinance that allowed the openings of these new SSMs originated in Seoul, Jeonju and other large cities in 2012.
Two current policies proposed to regulate SSMs
As stated above, a new law created a petition system that allows the Small and Medium Business Administration to urge large enterprises to delay business expansion or to reduce production and quantity. After fact-finding and deliberations by the government, it was determined that if a large corporation’s expansion menaced local merchants, restrictions could be applied. The main method used to curb expansion of SSMs is the implementation of compulsory closing days and limitations on business hours. This ordinance is currently in effect in Seoul, Cheonan, Jeonju and other cities. In Daegu, a law to regulate SSMs through compulsory closing days has been implemented since April 8th 2012. Forty SSMs in Daegu must close on the second and fourth Sunday of every month. Stores over a specified size in European countries such as the United Kingdom, France, and Germany must observe restrictions on operating on Sundays. Big discount stores in France cannot open at all on Sunday. In the United Kingdom they must shorten their hours to 6 hours a day. The German government also regulates big discount store business hours from 6 a.m. to 8 p.m. on weekdays. Italy regulates big discount store business hours from 9 a.m. to 10 p.m. on weekdays as well.
Recent changes in sales trends
According to analysis data from the Korea Chainstores Association, people in their forties and older account for represent 54.6% of all sales. (people in their forties accounted for 33.0% and people in their fifties and older accounted for 21.6%) Consumer spending patterns have changed drastically. Sales at discount stores by this prime demographic, who were the main customers of traditional markets, have increased significantly.
The problems with the SSM regulations
The conflict between SSMs and local merchants is deepening. This is because the local governments and large distribution companies that contract with SSMs have not been active in dealing with the situation. There are also concerns that the petition system and amendments to the ordinance are invalid. The petition system is applied to SSMs that will be opened in the future and not to existing stores. Therefore, SSMs can avoid restrictions by engaging in “guerrilla openings.” For example, corporations can seal construction sites and hang signs stating some other kind of store will be opened and then open an SSM instead. There is also no way to stop SSMs from opening if they state they will comply with the ordinance. The petition system is just a suggestion and has no real legal force, so it cannot get to the root of the problem. The government also just announced that in actuality they do not have the legal authority to stop SSMs from opening. They can only make a request. The fact is that in spite of these efforts SSMs do not comply with the current policy. The government enacted a provision that would fine SSMs up to 50,000,000 won if they disobey orders of final fulfillment. In the end, despite the good intentions, the petition system has no real power and only allows the government to suggest that large corporations delay opening new SSMs. An amendment to the ordinance limits SSM sales hours. However, this law does not really help local merchants, because most of them do not stay open late either. The sales of local merchants in the Jeonbuk area have decreased by 42%, and the average daily number of customers has decreased by 50%. In contrast, the sales of SSMs have increased by more than double, and their operating profits have increased nearly three times. The Korea Federation of Small and Medium Businesses conducted a survey about the effect of SSMs in May of 2009. According to the survey, average daily sales of local merchants have decreased by 34%, and 39% of all small merchants and local merchants are suffering losses. Companies that supply local merchants are also in danger because of declining sales by local merchants. At first, they insisted on limiting the business hours of SSMs, and prohibiting them from selling specific products such as cigarettes and tofu. Second, they insisted that SSMs can lead to monopolies by several major companies so it’s inevitable that smaller supermarkets and businesses around SSMs are in danger of collapse. They insist that the Korean government should crack down on the monopolization by major companies.
Problems caused by SSMs
SSMs cause many problems. First, general supermarkets cannot compete. Products in SSMs are less expensive than those in general supermarkets. The government provides support for some general supermarkets in the form of low interest loans and the installation of new POS (Point of Sales) equipment, but it makes little difference. These general supermarkets are referred to as “Nadle shops,” compared with SSMs Nadle shops are still not competitive, because SSMs are able to buy goods cheaper and in greater quantity than Nadle shops. SSMs also carry a wider variety of products, and they provide consumers with additional facilities such as convenient parking and delivery services. Second, SSMs do not always good for local economies. For example, the owners of small supermarkets are consumers of the region as well as merchants, so they return the greater part of their profits to their local communities. Conversely, most head offices of SSMs are located in the capital area and even though the SSM is situated in a local region, the significant share of profits is apt to flow to the capital area. Finally, SSMs sell products using marketing gimmicks. E-MART milk is cheaper than other brand milk such as Seoul, Maeil and Yeonsei milk. The lower price leads to more purchases by customers. Therefore, many customers purchase E-MART milk. However, if you examine E-MART milk closely, there is no mark that calcium, which is a main nutritive component, is added. The credibility of E-MART milk is lacking compared to other milk brands. Moreover, promotional products do not have difference in prices from general products but they promote as such. Consider Choco Heim for example, the unit pricing of general products that are being sold (weight: 47g, unit pricing: 238won/10g) is cheaper than comparable promotional products (weight: 142g, unit pricing: 186won/10g). In some cases promotional products and general products also have the same unit pricing. In the case of Magaret, the unit pricing of promotional products that weighed 342g and the unit pricing of general products that weighed 228g was the same at 122won/10g. Promotional products and general products of Mon Cher cacao have the same unit pricing at 100won/10g. Consumers can also receive a discount for using specific credit cards, but it is difficult to know which credit card will give discounts on specific products. In every store, discounted prices are written in large red lettering, but details explaining how discounts are applied are written significantly smaller. Therefore, people who cannot see “if you use a particular credit card then the goods are discounted” can be led to purchase products that they are not eligible to receive a discount on.
Tyranny of SSMs
SSMs target new customers through marketing campaigns such as distributing handbills or free gifts to people. Local merchants are not able to compete in this way. SSMs engage in activities to gain commercial supremacy before they open. Two months prior to opening, SSMs employ “customer recruitment staff” that sign people up for customer point cards and they distribute free gifts such as shopping baskets. SSMs also distribute advertisement flyers to promote events at the SSM to residential areas and apartment complexes. This type of active advertisement is done at great cost that cannot be matched by local merchants. In this manner, SSMs are encroaching on local markets. When they want to locate a new SSM in an area that is already occupied, another tactic used by large companies is to tell the landlord they will be willing to pay double the rent. The landlord will then double the existing supermarket’s rent based on the assurances made by the SSM that they would be willing to pay the increased rate. If the existing supermarket cannot afford to pay the increase the landlord will evict them and the SSM can take its place. For example, according to a survey conducted by the Korea Federation of Small and Medium-sized Businesses, one local merchant who has had a lease in the same building for 8 years might have to leave because the landlord wants to double his monthly rent because of an SSM.
The position of SSMs
SSMs claim that establishing stores in local areas can help communities above all by creating jobs. The Bank of Korea revealed major supermarkets and SSMs account for around 200,000 jobs. SSMs draw customers, so local merchants that are located near SSMs can also benefit from increased traffic. They further assert that inexpensive quality goods, as well as competitive customer service provides satisfaction to customers. People are worried about monopolies of SSMs, but SSMs claim that monopolies will not result because monopolies are the result of dominance by just a few companies. If the SSMs of various companies locate in a specific area, the danger of monopolies will not materialize.
Help for local merchants
Creating Nadle shops is the most common form of assistance given by the government. The purpose of the Nadle shop policy is to save local merchants and integrate them into the neighborhoods they are located in. The government provides consulting and modernizing services, so local merchants can be more competitive through change and reformation. Local merchants can also receive replacement POS, equipments and shop signs. These new POS machines can save data on the costs of goods sold and the names of products on computer. Local merchants can also sell goods at lower prices through group purchasing. Retail supermarkets which have an area below 300㎡ can be designated as Nadle shops. Franchises which are managed by a conglomerate are excluded from being Nadle shop designation. Nadle shops can receive loans from the government up to 100,000,000 won at low interest and up to 1,000,000 won for displays and relocating merchandise. However, support from the government is not having as much tangible impact as was hoped for. We interviewed the owner of a Nadle shop in front of Yeungnam University. He said that the support he receives from the government is not helpful with sales. He can receive up to 1,000,000 won to change and reform local supermarket, but the value of interior design corresponds to more than 20,000,000 won at minimum. Changing of POS systems and shop signs do not do anything to help sales. Items available for group purchase are very limited considering the number of items sold. He said that Nadle shops should not be opened within 60m intervals and it should be assured legally.
Jae-Yong Lim Chairman of Korea Supermarkets Alliance in Daegu
Q) Do you think the policies of the government are helpful to local merchants?
A) Support for local merchants exists, but it does not address the real problem and the government does not do enough for follow up controls. It seems like policies that are established to support local merchants are just “sunset laws,” which means it ends up simply being abolished in short order. I think the mandatory period before laws can be abolished should be extended. The policies for controlling SSMs and supporting local merchants are invalid. The laws are also too vague. More definitive laws need to be passed.
Q) What can be done to promote coexistence between SSMs and local merchants?
A) Large corporations should not be allowed to invade regional markets and compete directly against local enterprises. Large corporations should be encouraged to focus more on foreign markets and not so much domestically in order for there to be any coexistence with local merchants. The government should pass stricter laws about SSMs. These days, policies that deal with helping local merchants are being written. However, these policies are ultimately useless after SSMs are already established. SSM locations are being determined through the reporting system. The reporting system should be changed into a permit system.
The Observer requested interviews with the Korea Chainstores Association, Home plus express, LOTTE My super, GS Supermarket and emart everyday. However, they all declined to be interviewed.
The government has passed various restrictive policies regarding SSMs, but these policies are not actually helpful for local merchants. The survival of local merchants cannot be left up to free competition. To save local merchants from SSMs, policies need to be enacted to address the fundamental problems. The really difficult part is doing this without interrupting service to the consumers.