Industry's Perspective on Kurly's Formalized Quick Commerce(Q-commerce) Business

1. On January 22, 2024, it was reported that Kurly is set to make a significant entry into the Q-commerce business. According to a report by Chosun Biz, citing the distribution industry, Kurly plans to establish a Micro Fulfillment Center (MFC) in Daechi-dong, Gangnam District, Seoul, possibly by the following month. Vroong has been selected as the logistics partner, providing detailed insights into the plan.
2. Kurly's entry into Q-commerce is not a new development. Investigations reveal that Kurly has been engaging with various logistics firms for its Q-commerce venture. Previous content has summarized the evaluations and potential of Kurly's Q-commerce business by current domestic distribution and last-mile delivery company officials. Kurly has reaffirmed its stance on entering the Q-commerce business.
3. For Kurly, which has been operating primarily on overnight deliveries, Q-commerce is a new venture. This operation requires both infrastructure for logistics hubs at urban customer touchpoints and a network for fast deliveries. Kurly has been actively searching for logistics partners capable of swift deliveries.
4. Recent media reports have commonly pointed to 'Vroong' as the partner. Vroong, acquired by hy (formerly Korean Yakult) in April of the previous year, originates from Mesh Korea. It has functioned as a delivery partner for CJ Olive Young's same-day delivery service 'Today's Dream' and has a precedent of establishing a joint venture with Oasis for Q-commerce, albeit with some issues.
5. However, Kurly has stated that "no detailed decisions have been made regarding the operation of Q-commerce, including any agreement with Vroong." This includes decisions about where the logistics hubs will be operated, whether to build its own or use a partner's hub, whether these will function as MFCs or as Transfer Centers (TCs), and which company will be the logistics partner for Q-commerce.
6. CONNECTUS inquired with Vroong, rumored to be the chosen partner for Kurly's Q-commerce, about the selection and operational method. However, they received a non-committal response, and any updates will be added to this content as confirmed.
7. In summary, while it's confirmed that Kurly intends to enter Q-commerce and has been in touch with potential logistics partners, specific operational methods have not been determined yet. The following sections will consolidate the skepticism and optimism of industry professionals regarding Kurly's entry into Q-commerce.

Skepticism: Can the Costs Be Managed?

1. Skeptics express concerns over the substantial investment costs Kurly might need to establish itself in Q-commerce. Especially, if Kurly chooses to build and expand urban logistics hubs like MFCs, as recent reports suggest, the operational costs, including rent and inventory management, would be significant.
2. Very few domestic companies profit from building MFCs for quick commerce. CJ Olive Young is one of the few examples, continually expanding its MFCs while maintaining profitability. However, even CJ Olive Young didn't start with MFC construction from the beginning of its Q-commerce venture. Instead, it utilized its existing offline store network to keep the cost structure as light as possible.
3. Other successful examples like Woowa Brothers' B-Mart, based on MFCs, have continuously faced concerns about their high-cost structure. Even Delivery Hero, the parent company of Woowa Brothers, only recently announced a profit margin of 1.1% relative to the transaction volume for its D-Mart (including B-Mart), part of its Q-commerce business. This profit was achieved only after significant downsizing of urban logistics hubs and accepting a 22% decrease in transaction volume compared to the previous year.
4. Apart from CJ Olive Young and B-Mart, the scenario is even more dire. Coupang Eats Mart, similar to B-Mart, has downsized its Q-commerce operation points post-pandemic. SSG GO, an MFC-based Q-commerce operated by Emart, ultimately opted to discontinue its service. Considering these circumstances, there are doubts about Kurly's financial leeway to invest in Q-commerce, especially as it reported a monthly EBITDA profit in December 2023 but still faces an accumulated operating loss of 119.1 billion won up to 2023.
5. The relatively low margin rate of Kurly's key categories, such as meal kits and fresh food, and the high level of difficulty in inventory management were highlighted. Compared to overnight delivery, the high cost of delivery services raises questions about Kurly's ability to bear these costs until reaching its sales targets.
6. If Kurly forms a partnership with a delivery agency, it will need to establish measures to maintain service quality during shortages of riders. This is a relatively unfamiliar territory for Kurly, and opting to build its own rider network would only add to the already heavy cost structure.
7. B-Mart addresses related issues through its logistics subsidiary, Woowa Youths, which has its own delivery network and operational capabilities. CJ Olive Young avoids risks by contracting with multiple delivery partners simultaneously. Recently, it has strengthened its cooperative relationship by investing directly in Chain Logis, responsible for Today's Dream MFC same-day deliveries.

“According to CONNECTUS content, Kurly achieved its first monthly EBITDA profit in December last year. However, the cumulative consolidated sales until the third quarter of 2023 were 154.6 billion won, marking a growth of only 1% compared to the same period last year. It's somewhat perplexing that Kurly, experiencing stagnant sales growth, would venture into a challenging and unpredictable business like Q-commerce, especially one requiring substantial initial investment. While Kurly is known for its continuous efforts to cut costs and optimize logistics center operations, Q-commerce, on the other hand, seems like a business that, although may generate immediate sales, requires a long-term investment without a guaranteed return, making the distribution industry apprehensive,” says Mr. A, an official from logistics subsidiary of domestic distribution company G.

“Q-commerce inherently incurs higher logistics costs per order compared to overnight delivery. If one tries to operate the service without urban logistics centers to save costs, it might not be sufficient to maintain a profitable order price due to limited product range. Last-mile delivery also needs to be conducted through partnerships, which will incur significant costs, and managing the quality of delivery won't be easy. On the other hand, CJ Olive Young's Today's Dream could structure its costs by utilizing existing stores as MFCs until reaching a certain number of orders, and deploying store personnel to Q-commerce. Moreover, as beauty products have a high unit price and good margin rate, profits were more feasible. However, for Kurly, the starting point seems somewhat disadvantageous,” says Mr. B from a delivery and Q-commerce platform industry.

Optimism: Can't It Be Lightly Operated?

1. Contrarily, some argue that in special circumstances, Q-commerce can be operated in a lighter, more cost-efficient way, although this might limit scalability. Compared to building MFCs for inventory storage and immediate delivery, this approach would involve less financial burden.
2. The first model is not immediate delivery but bundled same-day delivery in N-hour intervals. If Kurly partners with a logistics company to operate urban area TCs, there would be no need for Kurly to invest in an MFC. Products stored at Kurly's existing logistics hubs or at the hubs of Kurly's suppliers can be transported to the partner logistics company's TCs in time for the same-day delivery cutoff.
3. Kurly has previously tested same-day deliveries linked with live commerce, partnering with Chain Logis, the delivery partner for CJ Olive Young's Today's Dream. If this model proved successful for Kurly, it might consider expanding inventory storage hubs across urban areas in stages.
4. Another interconnected approach is forming a Q-commerce category centered around high-margin beauty products, which can absorb the delivery costs better than food items. The industry's expectations for integrating Q-commerce with beauty live broadcasts are evident from the successful past instances of Beauty Kurly live commerce.
5. These are the various opinions gathered regarding Kurly's formalized Q-commerce business. Personally, the timing of Kurly's Q-commerce entry intriguingly seems to target the vulnerabilities of several competitors, especially CJ Olive Young. What this entails will be elaborated through Connectus's thoughts.

“The Q-commerce model for Kurly might resemble CJ Olive Young's Today's Dream-style bundled delivery within 3 hours, rather than B-Mart's immediate delivery model. Setting order deadlines 2-3 times a day and then routing the orders for each time slot might be the operational approach. This method can significantly reduce the cost per delivery compared to immediate delivery, while fully utilizing Kurly's logistics capabilities. Usually, the order volume for overnight delivery surges explosively in the hour before the deadline, and Kurly has been handling this without major incidents for years. They also have experience operating their logistics centers like TCs. If Kurly prepares for Q-commerce logistics in their own effective way, it could be possible to optimize costs while achieving target sales. If successful at the first logistics hub, it could gradually expand this model throughout Seoul and Gyeonggi Province,” says Mr. C from a last-mile delivery platform.

“The live commerce industry is eagerly awaiting the regular programming of Beauty Kurly's live broadcasts (Labang). The reason being, the few event-based Beauty Kurly live sessions conducted in the past have been met with explosive reactions and consecutive sold-outs. If Kurly ventures into Q-commerce, initially operating MFCs centered around planned volumes for live commerce might suffice. Offering live-special beauty product same-day delivery and then regular delivery for replays as the basic volume, and gradually increasing the items and delivery orders, might not entail significant cost burdens or losses,” says Mr. D from a live commerce production agency and host MCN.

From the Editor-in-Chief

1. CJ Olive Young is credited with widely spreading the perception among consumers that they can receive beauty products and mid-to-high-priced brand necessities on the same day through its Today's Dream service. Before Today's Dream, the Q-commerce market was largely dominated by B-Mart as the only successful industry example. The range of Q-commerce delivery items tended to be limited to light and damage-resistant products like snacks, clothing, SIM cards, etc. Today's Dream successfully introduced beauty products with high customer spending and profit margins into Q-commerce, now preparing to expand into national metropolitan cities.
2. Kurly might be aiming to step into the beauty Q-commerce market carved out by CJ Olive Young, adopting a very similar approach. This resembles how Kurly expanded its overnight delivery services to regional areas specifically targeted by Coupang's overnight delivery expansions.
3. Coincidentally, the delivery company mentioned as Kurly's Q-commerce entry partner in various media reports is Vroong, which collaborated with Today's Dream. The company that Kurly tested for same-day delivery linked with live commerce was also Chain Logis, a partner of Today's Dream and an investee of CJ Olive Young.
4. Furthermore, CJ Olive Young is planning to expand its MFC-based Q-commerce into metropolitan cities in the first half of this year. The plan is to replicate the successful Today's Dream MFC model from the capital region to Busan, Daegu, Gwangju, etc. It seems as if Kurly timed its Q-commerce business announcement just as CJ Olive Young is about to disperse its capabilities into the regions. If Beauty Kurly, which achieved a transaction volume of 300 billion won last year, enters the scene, it might create a scenario reminiscent of a burglary, hitting CJ Olive Young's stronghold while its capabilities are spread thin.
5. Unlike CJ Olive Young, Kurly lacks an offline store base. However, recently Kurly began operating Kurly-specialized convenience stores in collaboration with CU (BGF retail) from the end of last year. These stores are selling around 110 types of Kurly PB products. If the number of these convenience stores continues to grow, they could serve as a support for achieving initial success in Q-commerce, similar to how CJ Olive Young's roadshops did. Of course, the profits Kurly takes home might be limited due to the revenue-sharing structure with the convenience stores, but the burden of infrastructure expansion costs could be significantly reduced.
6. Ultimately, selecting the right partnership for Q-commerce delivery will be crucial for Kurly. There were no doubts about Kurly's capabilities in managing upstream logistics for Q-commerce during this investigation. However, the question of 'who will handle the deliveries?' was repeatedly raised. Currently, Kurly is in contact with various candidates, including delivery platforms and same-day delivery platforms, reviewing their rates and operational conditions. What decision will Kurly make, and what will be the outcome? We will continue to provide updates.