'Regulation-Free' Hanaro Mart Faces a Storm of Poor Performance

Nonghyup Distribution Operating Hanaro Mart
Four Consecutive Years of Losses Since Integration
Ongoing Capital Erosion... Financial Soundness Deteriorates

Nonghyup Distribution, which operates the agricultural and food specialty store Nonghyup Hanaro Mart, has continued to post annual losses and has not been able to escape capital erosion. The integration policy for distribution affiliates implemented by its parent company, Nonghyup Agribusiness Group, is being cited as a key factor worsening profitability. As discussions to ease regulations on large supermarkets are spreading among political circles and academia, there are concerns that Hanaro Mart’s competitiveness could further weaken if this structure persists.

Nonghyup Distribution Exterior View

According to the audit report Nonghyup Distribution submitted to the Financial Supervisory Service’s electronic disclosure system on June 15, the company’s total equity last year was 163.6 billion won, about 140 billion won less than its capital stock of 304.3 billion won, resulting in a state of partial capital erosion. Capital erosion occurs when total equity is less than capital stock, indicating that the company's retained earnings are decreasing and eroding its capital. If the financial condition deteriorates further and total equity turns negative, the company will fall into a state of full capital erosion, which is considered an accounting insolvency.

Nonghyup Distribution’s total equity last year decreased by about 49 billion won compared to the previous year’s 212.5 billion won. This was due to a net loss of 33.9 billion won last year and the carryover of 86.9 billion won in undisposed losses from the previous year. During the same period, the debt ratio rose from 110.45% to 164.43%. Current liabilities, which must be repaid within a year, reached 235.3 billion won, exceeding current assets (76.2 billion won) by 159.1 billion won, indicating a deterioration in financial soundness.

This is the result of stagnant business performance combined with a continued burden of fixed costs such as labor expenses. Industry observers believe that the poor performance was caused by Nonghyup Agribusiness Group’s decision in 2021 to merge four distribution affiliates into Nonghyup Distribution. Nonghyup Agribusiness Group, which owns 100% of Nonghyup Distribution, launched the integrated entity in November of that year, combining four companies (Nonghyup Distribution, Nonghyup Chungbuk Distribution, Nonghyup Daejeon Distribution, and Nonghyup Busan Gyeongnam Distribution) out of the five existing distribution subsidiaries, excluding Nonghyup Hanaro Distribution, under the banner of ‘enhancing management efficiency.’

The company’s sales fell in real terms from 1.2376 trillion won in 2020 to 1.3944 trillion won last year, considering inflation and other factors. Over the same period, operating profit swung from 11.5 billion won to a loss of 30.5 billion won. Net profit also fell from 5.1 billion won to a loss of 33.9 billion won. Cash flow from operating activities dropped 36.3% year-on-year to 10.9 billion won last year, indicating further weakening of its core business competitiveness.

In addition, the number of employees increased from around 1,600 in 2020 to 2,255 as of last year, further raising fixed costs. Selling and administrative expenses, which were around 170 billion won before the merger, surged to 250 billion won the following year and approached 280 billion won by the end of last year.

Unlike other large supermarkets, Nonghyup Distribution is not subject to regulations such as mandatory closures twice a month or bans on late-night operations. The current Distribution Industry Development Act imposes such regulations on large supermarkets and super-supermarkets (SSMs) to promote coexistence with traditional markets and small and medium-sized retailers. However, Nonghyup Hanaro Mart, operated by Nonghyup Distribution, is exempt because over 55% of its annual gross sales come from agricultural and marine products. Despite this regulatory advantage, Nonghyup Distribution has reportedly failed to fully capitalize on the benefits enjoyed by its competitors due to operating restrictions.

An industry official commented, “As the retail environment has shifted from offline to online, Nonghyup Distribution has not been able to fully benefit from the regulatory exemptions offered to offline sales channels. If measures such as permitting dawn delivery and abolishing mandatory closures for large supermarkets become a reality, its market position could be further undermined.”

This content was produced with the assistance of AI translation services.