Can hy's Yakult Delivery Network Transform into a Subscription Economy Commerce?
🛒 What You'll Learn from This Article:
- Amidst the consumer recession dominated by Coupang, there's a manufacturing company maintaining steady growth: hy (formerly Korea Yakult). hy's revenue in 2024 reached KRW 1.5191 trillion, marking a growth of approximately 10.3% compared to the previous year. The key to hy's unique success seems to be their distinctive sales and logistics network, the 'Fresh Managers.' Some Fresh Managers have annual sales exceeding KRW 200 million, and considering their total number, their contribution to revenue exceeds KRW 1 trillion. How is this possible?
- Door-to-door sales were popular before the digital age but are now often seen as outdated. For instance, the contribution of door-to-door sales in the cosmetics industry has halved compared to the past. However, the 'special' nature of door-to-door sales can still captivate customers. Could hy's Fresh Managers also benefit from this?
- It's not just the 'specialness' that drives revenue growth. hy's Fresh Managers could thrive because they are not simply defined as 'door-to-door salespeople.' hy redefined Fresh Managers as mobile cold chain stores and one-person fulfillment centers capable of customer delivery and service. As a result, they achieved an unprecedented expansion. Let's dive into the details based on stories from hy's practitioners.
CHAPTER 1
A Salesperson Generating Store-Level Sales?
I am a long-time subscriber of the YouTube channel 'EO.' Recently, I've been enjoying the 'Choi Sung-woon’s Thought Experiment' podcast series featuring in-depth interviews with prominent figures like VIVE Company's vice president Song Gil-young and Dr. Kim Ji-yoon of Knowledge Play. In this series, I recently came across a surprising thumbnail: Seo Yoon-jung, the top Yakult salesperson in the country and a Fresh Manager.
The term Fresh Manager might still be unfamiliar to some. It refers to hy's door-to-door salespeople, previously known as 'Yakult Ladies.' Although often mistaken as a relic of the past, Fresh Managers are very much active. According to media reports, the average annual sales of the approximately 11,000 Fresh Managers nationwide exceed KRW 100 million, suggesting that their combined sales approach KRW 1 trillion.
For instance, Seo Yoon-jung, featured in EO content, was selected for hy's 'Hall of Fame,' a distinction for the highest-selling Fresh Managers. Her annual sales in 2023 were an impressive KRW 240 million, comparable to the average annual sales of a Compose Coffee shop. This means that an individual door-to-door salesperson achieved sales equivalent to those of a coffee shop.
As a result, the proportion of Fresh Managers from the younger generation (20s and 30s) is increasing, albeit still small at around 5%. This trend has grown 29 times over six years, indicating a growing interest from the younger generation. Fresh Managers are not just a nostalgic presence but are generating significant sales and attracting attention from future generations. Analytical content focusing on these young Fresh Managers is becoming more common, as seen in the mentioned YouTube videos.
Currently, Fresh Managers are the core network making hy's business unique. They create a distinct 'differentiation' in the last-mile logistics service that other commerce companies lack. This differentiation is reflected in hy's growth strategy. Today, we'll discuss the future prospects of hy's subscription economy service along with a comprehensive overview.
CHAPTER 2
How Inefficiency Became a 'Specialness'
hy, still more familiar as Korea Yakult, has grown through a unique process. As a pioneering company introducing fermented milk in Korea, they did not rely on traditional distribution channels like supermarkets or large marts. Instead, they exclusively supplied products through their independently built door-to-door sales channel, 'Fresh Managers.' This method helped overcome consumer reluctance towards unfamiliar fermented milk products and maintained product freshness and quality through their own cold chain distribution capabilities.
However, as the distribution industry evolved, manufacturers' independent supply chains became relatively inefficient. Distributors, benefiting from economies of scale by handling multiple manufacturers' supplies, had better logistics efficiency. Additionally, door-to-door sales, which required human involvement, incurred additional costs and began to disappear.
For example, Amorepacific, a representative company that grew based on door-to-door sales, like hy, saw its door-to-door sales proportion drop to around 20%. Considering that door-to-door sales accounted for nearly 40% of the cosmetics market in the early 2000s, this is a significant change.
However, door-to-door sales retained a special 'emotional' appeal that new channels lacked. Do you remember the viral success of Coupang's early Rocket Delivery, with Coupangmen leaving handwritten notes and drawings on packages? These personalized touches in last-mile delivery garnered enthusiastic customer responses but are now nostalgic memories in Coupang's efficiency-first delivery system.
In contrast, hy's Fresh Managers can still provide such special customer service structurally. They engage in face-to-face interactions, hand-delivering products, and maintaining long-standing relationships with regular local customers. This unique characteristic can also be replicated to some extent in online delivery.
The rise of various viral content involving the 20s and 30s generation aligns with this special feature. Seo Yoon-jung's story includes an episode where she checked in on an elderly customer and later attended their funeral. This warm, relational channel stands out as special in today's logistics-driven world.
CHAPTER 3
How a Change in Perspective Expanded the Category
If hy's Fresh Managers only had emotional strengths, their channel wouldn't have sustained. As a company, hy needs profitability to continue.
According to the audit report, hy's consolidated revenue for 2023 was KRW 1.5191 trillion, a 10.3% increase from the previous year's KRW 1.3776 trillion. This growth was possible because hy redefined Fresh Managers beyond just door-to-door salespeople, discovering new value.
Rebranding Yakult Ladies as Fresh Managers, hy defined them as 'one-person fulfillment centers' capable of inventory management, delivery, and customer response. Their ability to store and deliver cold-chain products using refrigerated electric carts provided a significant differentiation from traditional last-mile delivery methods.
A notable example is the 'Cold Brew by Babinski,' the first non-fermented beverage expansion by hy in 2015. Kwak Ki-min, hy's platform operation team leader, detailed the story at the <Commerce Marketing & Technology Summit 2024>. Initially, American barista champion Charles Babinski rejected hy's offer to collaborate on a coffee product, citing that commercially available coffee couldn't meet his freshness standards.
However, learning about hy's Fresh Manager-based logistics network changed the narrative. Fresh Managers could deliver freshly produced products daily, ensuring the coffee quality Babinski envisioned.
Thus, hy launched a cold brew product adhering to a maximum 15-day shelf life principle, receiving customer support and paving the way for expanding beyond dairy products. Recently, hy even launched a cosmetics brand, 'NK7714,' continuing its expansion.
hy's transformation of Fresh Managers into one-person fulfillment centers stemmed from relentless innovation. In 2015, hy invested KRW 200 billion over three years to develop and launch the world's first rideable refrigerated electric cart, COCO (Cold&Cool). Initially outsourced to Daechang Motors, hy now manages the technology through its subsidiary, hy Mobility.
Additionally, hy has improved services like enabling nearby Fresh Manager searches via the 'Freddit' app. Fresh Managers, after completing regular and partnership deliveries, engage in flexible sales, functioning like a mobile store but facing challenges in customer acquisition due to their mobility. The 'Find a Manager' feature was a technical solution to this issue.
CHAPTER 4
Growing as a Subscription Commerce
What does hy's future look like? hy aims to differentiate itself as a subscription service provider based on Fresh Managers. They launched the integrated online mall 'Freddit' in 2020, offering 1,500 products and gaining 2 million members. With a target of KRW 200 billion in Freddit mall sales in 2024, they have seen some success.
hy plans to combine convenient subscription, fresh delivery, and emotional care to establish a unique niche. Given their product development capabilities, this seems feasible.
However, challenges remain. Fresh Managers have fixed working hours, creating operational gaps. To overcome this, hy acquired 'Vroong,' a delivery network, to establish an immediate delivery infrastructure, adding around 10,000 riders for last-mile delivery. In 2022, hy also piloted 'Freddit Shop,' a 24-hour unmanned store, to expand customer experience.
Yet, hy still faces hurdles to secure a win in the subscription commerce space. The 'traffic' issue is notable: the monthly active users (MAU) of hy's Freddit app peaked at around 330,000 in May last year and have since declined. Enhancing differentiated services and user experience is essential for sustained growth.
Moreover, Freddit Shop hasn't expanded beyond its first store, and despite over a year since the Vroong acquisition, significant synergy is yet to be seen. hy plans to launch a delivery app, 'Knowk,' in June, offering free delivery to expand food delivery services. However, achieving meaningful results in Korea's competitive free delivery market seems challenging.
hy has previously diversified into various sectors like cafes, leisure, education, and medical devices, with limited success. The focus should be on 'product development' to maximize Fresh Managers' efficiency within a limited scope. Given hy's history of introducing Korea's first fermented milk and successfully expanding into coffee and cosmetics, this approach seems promising.
If hy positions itself as a manufacturing company capable of direct logistics, it could carve out a unique space in the commerce competition era. We look forward to seeing hy's next move.
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