The structures of Korea’s retail and logistics markets are changing. According to Statistics Korea, the proportion of e-commerce in the total retail market was 28% in 2019, which was only 13% in 2015. In 2019, retail giant Lotte announced the closure of 200 offline stores, out of its 700 existing stores, within the next five years. Meanwhile, in 2Q19, E-Mart’s revenue turned into negative territory for the first time since its opening in 1993.

On the other hand, the e-commerce market grew 36% CAGR (Compound Annual Growth Rate) from 54 trillion won in 2015 to 134 trillion won in 2019. The most notable area was the evolution of ‘dawn delivery’.

Dawn delivery implies an early morning delivery service of fresh food, through which customers receive their purchased items in less than 12 hours. Within e-commerce, the ‘dawn delivery’ market is rapidly growing and reshaping the cold-chain logistics in Korea. In fact, the dawn delivery market is growing at a much faster pace than the overall e-commerce market.

In less than five years, the market size expanded 80-folds in 2019 to 800 billion won, compared to 10 billion won in 2015. Dawn delivery business continues to gain popularity because of an increasing number of single-person households: delivering ready-to-eat food in small servings, which arrives early in the morning. New domestic start-up Market Curly has successfully launched the service by targeting this consumption trend among single-person households.

Currently, the dawn delivery service is operational only in the Seoul Capital Area (SCA). However, according to the National Federation of Fisheries Cooperatives, only 12.8% of the country’s total 794 cold logistics centres are located in the SCA. Moreover, 60% of centres in SCA were constructed more than ten years ago.

The cold chain for dawn delivery requires different features from traditional cold logistics. In the past, cold logistics assets were mainly located near ports and functioned only as food storage centres. With the advent of dawn delivery, now the latest cold-chain assets are involved in the distribution of products as well rather than just storing food. So a new kind of assets are locating close to SCA, with a large-built yard site and loading dock to execute dawn delivery in time.

The complex logistics centres usually comprise 70% dry and 30% cold, with cold storage located at the basement level to efficiently control temperature, which also enables storage of both dry and fresh food such as Home Meal Replacement.

Rents of cold logistics centre are twice to that of a dry logistics centre. Higher rent structure attracts foreign capital including Kendall Square, Emp Belstar (U.S. private equity fund) and Goldman Sachs. Responding to the needs of e-commerce and dawn delivery, domestic offline retail conglomerates have also started to build in-house cold-chain assets. As fresh food tends to have tight expiration dates, its distribution cost takes a large portion of the overall cost. Through the already-established distribution channel, offline retailers can reduce this distribution cost more than start-ups.

“Dawn delivery is reshaping the composition of new logistics centres,” says Woo Jung Ha, Director of Logistics team in JLL Korea.

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