[비즈한국] hy (formerly Korea Yakult), which has declared its transformation into a specialized distribution company, is aggressively expanding its new business ventures. Based on Vroong, which it acquired last year, the company has entered the delivery market and is also showing interest in the beauty industry by expanding its cosmetic lineup. However, as hy is entering already saturated markets quite late, some analysts suggest that successful market entry will be difficult without bold initial investments.
Launching a delivery app and expanding the cosmetics business
hy began operating its delivery app service, 'Knowk,' in June. It is currently conducting a pilot operation centered in Gangseo-gu, Seoul, and plans to expand its service areas by developing differentiated services in the future. An official from hy stated, "We are receiving positive feedback from consumers and business owners. The number of listed stores, which started at 900, has grown to 1,250," adding, "Since it hasn't been long since we launched the service, we plan to continue the pilot operation focused on Gangseo-gu."
In April of last year, hy invested 80 billion won to acquire Mesh Korea, the operator of the delivery agency platform 'Vroong.' Having secured 10,000 delivery riders, hy pondered ways to create synergy with Vroong, and after about a year of preparation, it introduced the delivery app service. As a latecomer to the delivery app market, Knowk highlights its low commission rate (5.8%) as a competitive advantage. This is half the rate compared to Baemin (Baedal Minjok) and Coupang Eats, which charge 9.8%, and Yogiyo, which charges 12.5%. It also provides free delivery benefits to consumers.
Recently, hy has been aggressive in scouting for new business opportunities. In 2021, it changed its name from Korea Yakult to hy and declared its transition into a distribution-specialized company, setting out to find new sources of revenue. Entering the delivery market by acquiring Vroong is also an effort to diversify a business structure previously focused solely on fermented milk products.
There is also an atmosphere of interest in the cosmetics market beyond the delivery sector. In May of last year, hy released an ampoule product using its self-developed cosmetic ingredient, Skin Probiotic 7714, and has since been expanding its lineup to include creams, sun essences, and gel cleansers. The company has also been active in marketing to increase offline customer touchpoints. It held its first beauty pop-up store near Seoul Station last July, and early this month, it held a second pop-up store in Seongsu-dong, Seongdong-gu, Seoul—often called the mecca of pop-up stores. It is also consistently running beauty product events on its own online mall, 'Fredit.'
An hy official explained, "We launched cosmetics as private brand (PB) products for our online mall, Fredit. We have currently released four products and plan to expand the lineup in the future."
Limits to growth in the core business: Will new ventures provide a breakthrough?
hy is pouring efforts into expanding its business scope because it feels the limitations of its fermented milk-centered business. As the school-age population, the primary consumer group for milk and yogurt, shrinks and the domestic economic slump continues, the company's performance has been sluggish for several years. After surpassing 1 trillion won in revenue in 2017, the company entered a period of stagnation, and its operating profit has also been on a downward trend. Although hy's consolidated revenue last year was 1.5191 trillion won, a 10.3% increase from the previous year (1.3776 trillion won), it recorded an operating loss of 27.4 billion won, turning into a deficit.
hy has consistently attempted to diversify its business structure. In 2009, it acquired the golf course operator 'J-Leisure' and the education firm 'NE Neungyule 053290' to enter the golf and education businesses. In 2010, it launched the coffee chain 'Coco Bruni' and jumped into the café business. However, the results were not good. Coco Bruni never recovered from its deficits after launch, and the cumulative loss by the end of 2017 was estimated at approximately 25.9 billion won. Ultimately, in 2017, Vilac, a 100% subsidiary of hy, absorbed and merged with Coco Bruni, and by 2021, the last remaining Apgujeong branch was closed.
J-Leisure has also never managed to escape a deficit structure since its acquisition in 2009. It recorded a net loss of 11.9 billion won last year. NE Neungyule also posted a net loss of 3.4 billion won last year. After turning to a deficit in 2018, NE Neungyule saw a rise in performance during the COVID-19 period, but its performance fell last year due to poor results from its infant education brand and publishing division.
hy acquired the medical device manufacturer 'Curexo 043090' in 2011 and has invested over 100 billion won in it so far, but the results remain minimal. Curexo generated 72.9 billion won in revenue and 1.1 billion won in operating profit last year, but its net loss was recorded at 4.8 billion won.
As the new businesses attempted by hy have failed to produce results, Chairman Yoon Ho-joong has even been labeled with the tag of having a 'Midas touch in reverse.' Consequently, attention is inevitably focused on hy's aggressive expansion into new businesses after more than 10 years.
There are still more voices of concern than expectation. In the cosmetics market, it is difficult to secure loyal customers as the market is flooded with new brands. A beauty industry official explained, "These days, even individual entrepreneurs can order small quantities, like 100 or 200 units, of desired products through ODM (Original Development Manufacturing) firms, so the number of cosmetic brands is growing rapidly. It has become difficult to even catch the attention of consumers."
Whether the company can achieve results in the delivery market, where it has entered as a latecomer, is also uncertain. Lee Jong-woo, a professor of business administration at Ajou University, assessed, "The delivery market is dominated by the top two companies, making it a market where latecomers find it hard to survive. Furthermore, delivery demand has dipped, and the possibility of platform regulations is rising."
Professor Lee advised, "For a delivery app to succeed, it must secure sellers and consumers in a short period. Apps that previously relied on low commissions failed to secure sellers and were pushed out of the market." He added, "(hy) will likely need to make its move within six months. It can only gain competitiveness in the market by investing massive amounts initially for promotions and the like to attract business owners and consumers."
An official from hy stated, "We do not plan to make large-scale investments in Knowk. Marketing costs and other expenses are smaller compared to other delivery platforms. We will expand the business once services that can differentiate us from other delivery apps are prepared," adding, "We are committed to our core business while continuing to deliberate on new business ventures."