[Exclusive] NongHyup Economic Holdings to Absorb Hanaro Distribution... Restructuring Six Deficit Stores

Operating Losses Total 111.3 Billion Won Over Three Years
Integration Into Economic Holdings Set for January Next Year
Six Directly Operated Stores Including Samsong and Yangju to Close

Nonghyup Economic Holdings will absorb and merge Nonghyup Hanaro Distribution. It has been about 12 years since Nonghyup separated Hanaro Distribution as an independent entity. This merger is part of a phased restructuring to unify the scattered Nonghyup distribution organizations under Nonghyup Distribution. Along with the merger, there are also plans to close six directly managed Hanaro Mart stores with accumulated losses, which has led to concerns about job security among labor union members.

According to the distribution industry on September 11, Nonghyup Economic Holdings plans to hold a board meeting at the end of this month to adopt the resolution for the absorption merger of Nonghyup Hanaro Distribution. The scheduled date for the merger is January 1 of next year. A representative from Nonghyup Economic Holdings said, "We plan to finalize the merger proposal at the board meeting at the end of this month," and explained, "the restructuring of deficit stores is part of our efforts to improve management efficiency."

This merger comes as the Nonghyup Reform Task Force, which includes government officials and private sector experts, has launched a strong initiative to curb various corrupt practices arising from the excessive power of the Nonghyup Central Federation.

Nonghyup Hanaro Mart Namak Branch

One in four directly managed Hanaro Mart stores set for closure

Nonghyup Economic Holdings, in line with the merger, will close six locations: Hanaro Mart Samsong, Yangju, Sinchon, Yangsan, Changwon, and Dongtan. Yangju, Sinchon, and Yangsan will close within this year, followed by Samsong, Changwon, and Dongtan next year. It is understood that continued operating losses and accumulated deficits have made continued operation under the current system unsustainable.

The stores to be closed account for 26% of the 23 directly managed Hanaro Mart locations operated by Hanaro Distribution. This means that one out of every four directly managed outlets will close.

Nonghyup Hanaro Distribution was established in March 2015 during the restructuring of Nonghyup’s economic business lines after the 'separation of credit and economic business' from the Nonghyup Central Federation. The aim was to enhance the efficiency and competitiveness of agricultural product distribution by specializing sales and distribution activities through an independent legal entity. At that time, the sales distribution headquarters of the Central Federation, four logistics centers, 26 directly managed outlets, and about 2,500 employees were transferred to Hanaro Distribution. After its launch as a subsidiary of the Central Federation, Hanaro Distribution was incorporated as an affiliate of Nonghyup Economic Holdings in May of the same year.

In 2021, Nonghyup again restructured its distribution business. The core functions of Hanaro Distribution, such as product purchasing and logistics, were moved to Economic Holdings. Since then, Economic Holdings has handled product procurement, supply, and support for Nonghyup member Hanaro Mart stores, while Hanaro Distribution has been responsible for managing the directly managed retail stores and distribution centers.

However, Hanaro Distribution’s performance sharply declined afterwards. From 2023 to last year, the company recorded operating losses for three consecutive years. The operating loss increased from KRW 31.9 billion in 2023 to KRW 40.4 billion in 2024 and reached KRW 39 billion last year. Over the three years, total accumulated operating losses amounted to KRW 111.3 billion, while the cumulative net loss totaled KRW 108.1 billion. Revenue decreased and the financial burden grew heavier. Hanaro Distribution's revenue dropped from KRW 1.2915 trillion in 2023, to KRW 1.2711 trillion in 2024, and to KRW 1.1804 trillion last year - an 8.6% decrease over two years. Meanwhile, liabilities rose by 35.9% from KRW 212.3 billion to KRW 288.5 billion during the same period.

As losses continued, Hanaro Distribution slipped into a state of partial capital impairment from 2024. As of the end of last year, total equity stood at KRW 404.7 billion, which is KRW 95.3 billion below the registered capital of KRW 500 billion. The capital impairment ratio was 19.1%, more than double the 9.0% at the end of 2024. The total equity also decreased by 21% in just two years, from KRW 512.5 billion at the end of 2023.

Through this merger, the remaining store management functions, personnel, and assets of Hanaro Distribution will be transferred to Economic Holdings. Another distribution affiliate, Nonghyup Distribution, previously absorbed regional distribution corporations such as Nonghyup Chungbuk Distribution, Nonghyup Daejeon Distribution, and Nonghyup Busan Gyeongnam Distribution in 2021.

After eliminating deficit stores, operations to be handed to Nonghyup Distribution...Union voices job security worries

After absorbing Hanaro Distribution into Economic Holdings, Nonghyup plans to implement stepwise efficiency measures. Following the closure of unprofitable stores and restructuring the organization and personnel, it is moving forward with plans to entrust operation of the remaining Hanaro Mart stores to Nonghyup Distribution. In this system, Economic Holdings will retain ownership of outlets and real estate assets while Nonghyup Distribution will handle practical operations. Some product procurement and supply responsibilities will remain with Economic Holdings for the time being.

An official from the Ministry of Agriculture, Food and Rural Affairs commented, "In the past, local distribution subsidiaries were consolidated, but Hanaro Distribution and Nonghyup Distribution could not be merged due to differences in wage structures and union issues. Now, we understand that by first having Economic Holdings absorb Hanaro Distribution and entrusting store management to Nonghyup Distribution, the goal is to gradually unify distribution subsidiaries."

The labor union has expressed concerns about job insecurity. The number of employees at each store ranges from around 20 to almost 100, according to the store size. Nonghyup is considering reassigning permanent contract employees from the closed stores to nearby local wholesale markets or business sites managed by Economic Holdings. However, short-term contract workers may be excluded from employment succession. According to the union, about 60% of Hanaro Distribution employees are short-term contract workers with less than two years’ service, while permanent contract and regular employees each make up about 20%. A union representative pointed out, "At a briefing session, it was announced that full-time and permanent contract workers would be reassigned to other business units, and that contracts with short-term employees would be terminated, meaning these employees would lose their jobs when their terms end."

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