Footage of an Amazon delivery drone dropping a customer's package into a backyard swimming pool in the United States recently drew wide attention. It was a delivery failure — the drone left the parcel somewhere other than the designated spot — but it also showed how far drone delivery has spread in the U.S. market.
Amazon said recently it would expand drone delivery to 500 U.S. cities and towns by the end of this year, pledging to usher in an era of delivery within 30 minutes of ordering. Walmart earlier this year set a goal of adding the service at 50 more stores within the year and operating it at more than 270 locations nationwide by the end of next year.
While the two companies competing for the top spot in U.S. retail expand consumer convenience through delivery innovation, hypermarkets in South Korea cannot even offer dawn delivery because of regulation. Under an amendment to the Distribution Industry Development Act that took effect in 2012, hypermarkets are barred from operating between midnight and 10 a.m. and must close two days a month.
Squeezed by those rules, the COVID-19 pandemic and the rapid growth of e-commerce companies such as Coupang, the hypermarket industry keeps shrinking. Combined revenue at 26 major retailers rose 7.3% in the first half of this year from a year earlier, according to the Ministry of Trade, Industry and Energy, while revenue at the three largest hypermarket chains fell 7.3%. Hypermarkets' share of total retail revenue shrank to 8.5%, down 15.3 percentage points over a decade from 23.8% in 2016.
A major factor was Homeplus, which closed 37 underperforming stores in May and suspended operations. Once the country's second-largest hypermarket chain, Homeplus filed for rehabilitation with the Seoul Bankruptcy Court in March last year and pursued a sale while restructuring. The sale fell through, and after running out of working capital the chain halted operations at 67 stores nationwide last month. It secured emergency debtor-in-possession financing and resumed business on the 13th of this month.
Homeplus was driven into court-led rehabilitation by the aggressive debt-funded management of its controlling shareholder, MBK Partners, and by a business environment worsened by regulation. Restricting hypermarket operating hours in the name of protecting traditional markets and small neighborhood merchants pushed the No. 2 chain into a corner. The rules also pushed consumers toward e-commerce operators such as Coupang, a shift widely seen as a fatal blow to Homeplus.
Only now, at this point, are moves emerging to amend the Distribution Industry Development Act and lift the dawn delivery ban on hypermarkets. It is far too late. What is more discouraging is how slowly the effort is advancing amid controversy over the cooperation package the government has demanded from large retailers in return for easing the rules.
The Ministry of SMEs and Startups recently presented major retailers with a cooperation package reflecting the views of small business groups and asked them to review it, according to the retail industry. The main elements are a 100 billion won ($72 million) cooperation fund, a ban on selling small quantities of fresh food priced under 10,000 won during dawn delivery hours, and the sale of goods to small merchants at wholesale prices.
To run dawn delivery, hypermarkets need large investments — additional distribution centers, delivery vehicles and drivers, and overnight staffing. Contributing to a large cooperation fund on top of that adds to the burden. Capping sales of single agricultural, livestock and fisheries items at 10,000 won during dawn hours also ignores the small-volume purchasing needs of one- and two-person households. Selling goods to small merchants at wholesale prices amounts to letting them ride free on the buying power of hypermarkets.
Deregulation is welcome. But it becomes meaningful only when every stakeholder gains something real. A cooperation package that fails to reflect conditions on the retail floor and consumer behavior helps no one. Nor should one side's unilateral sacrifice be packaged as mutual growth. Token deregulation without practical effect is worse than none at all, given the time and cost it consumes. What is needed is a realistic and concrete agreement in which all stakeholders win.
