Tesco's Homeplus Chain in South Korea Scores Home Run With Smart Phone-Enabled Virtual Grocery Stores in Subway Stations

Food & Grocery Retailing 2.0

As part of its search for different ways and formats to reach food and grocery shoppers in South Korea, where its Homeplus is the second-largest retail chain after number one E-mart, United Kingdom-based Tesco recently created virtual stores in subway stations (pictured at top) in the city of Seoul as a way to try to make grocery shopping more convenient for the busy and time-pressed urban residents in what has become one of the most work-focused country's in the world.

The Homeplus discount chain is jointly-owned by Tesco and Samsung, with Tesco holding 94% of the stock in the venture.

The 115-store chain consists of big discount hypermarkets - which are similar to a Walmart supercenter in merchandise selection and similar to a mini mall in that the big marts also feature numerous independently operated (they lease from Tesco) smaller stores like travel agencies fast-food shops, bookstores and others inside them- along with smaller Express format stores. Homeplus also has an e-commerce store or mall.

Tesco's strategy with Homeplus in its quest to overtake E-mart, which is owned by Shinsegae Group, as South Korea's leading retailer is to find different ways, in addition to building actual stores, to use the online world to grow its sales.

It's Homeplus online store or mall is now the number one e-commerce site for groceries, general merchandise and consumer goods in the nation, which offers it a solid base in those strategic efforts. The virtual stores located in the subway stations are an extension of that online paradigm and strategy.

The Homeplus product-less stores in the subway stations consist of virtual grocery shelves and fresh and perishable food cases, which are designed to look just like the inside of a brick-and-mortar store, as you can see in the photograph at top.

Shoppers walk up to the virtual store, choose the items they want to buy, and then scan the product QR code using their smart phone.

Once the product QR code is scanned, the item goes into a shopper's online grocery cart.

When a shopper completes his or her purchases, they then request a time for the groceries to be delivered to their home later in the day.

The concept is essentially three-fold for Tesco's Homeplus.

First, research conducted for Tesco by the Seoul, South Korea office of marketing firm Cheil Worldwide showed that a significant percentage of urban-living and hard-working South Koreans are finding the task of weekly grocery shopping to be a burden because they're so busy at work,with family and in other activities.

Additionally, many South Korean consumers expressed a preference for being able to use waiting time, such as waiting for their subway car in the station, in productive ways.

Therefore putting these two consumer insights together resulted in the concept of attempting to allow people to shop at Homeplus wherever they may be, so to speak.

The rapid adoption and use of smart phones in South Korea also made possible the concept of converting this waiting time to shopping time, since all the technology needed to access and order groceries from the virtual subway station-based stores is contained in the hands of most urban consumers who use the subway system.

From November 2010 through January of this year, Cheil Worldwide (which produced the three minute video above featuring a look at the subway stores) launched a marketing and advertising campaign for the Homeplus virtual subway station stores. During the three month period, 10,287 consumers visited the Homeplus online store using smart phones, according to the firm. Additionally, the number of new registered members rose by 76%, and on-line sales increased 130%.

Before taking over as the head of United Kingdom-headquartered Tesco in March of this year, CEO Philip Clarke was in charge of the global retailer's operations in South Korea in his position as head of Tesco's European and Asian operations, its second largest unit after the United Kingdom.

Yesterday, Cheil Worldwide's office in Seoul, South Korea, which created the virtual subway stores for Tesco's Homeplus, won three awards for its marketing, adverting and communications campaign for the concept and brand at the 56th annual Cannes International Festival of Creativity (in France), which is affiliated with the famous film festival of the same name - Cannes.

The firm won a Grand Prix (the festival's highest award) in Media, and two Gold Lions in the direct advertising and Outdoor advertising categories, for the virtual subway stores. (See here.)

Tesco's Homeplus says it's looking for other similar venues in South Korea where it might put the virtual stores. Among the key criteria for such locations are public places and spaces that attract a high volume of people on a regular basis, along with having the "captured audience" characteristics of the subway stations, meaning places where people congregate and even better have to wait for something or someone.

The Homeplus virtual subway station-based stores from Tesco is one of the more innovative food and grocery retailing concepts we've seen over the last couple years.

It's also, in our analysis, a perfect example of where smart phone technology is taking us when it comes to retailing. In the not too distant future, don't be surprised if instead of using the conventional checkout stand in the supermarket or other format retail store (it's already starting in limited tests), shoppers instead will use their smart phones to ring up their own purchases, along with using the devices to pay for the purchases, in what is going to be the next wave of global retailing evolution.

The virtual stores, in subways or other public space are, in our analysis, a niche business with limited widespread utility for Tesco or any other retailer at present and in the near-to-medium term. But that's fine because that's as it's intended to be - one of a number of new ways and formats designed to reach shoppers where they are.

It's really all about convenience - bringing the store to the consumer - although it's important to note South Koreans' can already access the Homeplus online store with their smart phones wherever they are.

But the subway station-based virtual store does have the added benefit of the visual - the big screens depicting the virtual grocery shelves in the photograph at top.

It also has what we call the "captured audience element," meaning the subway stations, where the chief human activity is waiting, offer a good venue for suggestive selling (or shopping), which is really the key marketing feature behind the offering. A place featuring a captured audience throughout the day and night, with time on its hands while it waits, equals a good potential venue to get people to interact with the virtual grocery store and do some shopping.

We're going to be seeing numerous new and innovative experiments like the virtual stores from Tesco, Walmart and other retailers over the next few years, all made possible because of the smart phone and the new technology being added to it on what seems like a daily basis.

Stay tuned.