When Ian Wonshik Kwon’s wife shops for groceries online in Seoul, she uses no fewer than seven different platforms. Several years ago she used three. Kwon is the chief strategy officer at Lotte Retail HQ (and yes, he assures us that his boss does know his wife shops seven channels). Kwon uses his wife’s grocery shopping habits to demonstrate how diverse and complex South Korea’s grocery shopping market has become – especially online. It is, most likely, home to the world’s most developed, yet fragmented, e-commerce industry.Kwon started his business career as a management consultant at Boston Consulting Group in 2000 and has since worked in various retail channels and formats, including grocery, fashion, and e-commerce. At Lotte Retail his remit is to strategically transform all 11 retail business units to better prepare for changing market and customer needs in the future.  He believes the driver of grocery e-commerce is not only South Koreans’ widespread adoption of e-commerce in general but a growing trend towards micro-segmentation which Kwon illustrates using his wife’s purchasing behaviour. She goes to Lotte hypermarket for her basic grocery shopping, and the retail giant’s Lotte On food and grocery e-commerce solution to fill the gap between store visits. She also uses Coupang for non-food grocery items, as it offers the widest range, and GMarket for last-minute items she might need to prepare a family dinner. She sources most of the family’s kimchi from Lotte home shopping, which Kwon says offers the best value for the Korean dietary staple. Then she buys in-season produce, meat or seafood directly from farmers or fishermen via a local platform unknown outside Korea. “My wife says each retailer provides different value or variety. She chooses grocery retailers based on her value optimisation of price, quality, speed and convenience, simply because she can. And with no delivery fee,” he said. Essentially, as Koreans have been able to access more and more options online, micro-segmentation is meeting their needs. New players are evolving, each focused on distinct categories, rather than trying to be all things to all people as consumers in other global markets might be more used to. Kwon rejects the assumption that the trend is rooted in a shift in Korean customers’ grocery retailing needs. “I don’t think customers’ core needs are shifting or replacing the old ones. Online grocery offers more options for customers to choose from, depending on their needs. The evolution of convenience and supermarket businesses is having the same impact on customers’ core needs as well. Customers choose certain grocery shopping services based on their optimisation of price, quality, speed of delivery and convenience to suit their needs,” he said. Kwon cites Korea Government Statistics Bureau data defining modern grocery retailing as having four key channel formats: hypermarkets, supermarkets, convenience stores and online. Last year, convenience stores took the highest market share at about 28 per cent. Hypermarkets were next at 26 per cent and online right behind with 25 per cent. Supermarket chains fight it out over the remaining 21 per cent. At 25 per cent, online might seem to be a high share of total grocery spend, but within Korea that figure is low compared to other product categories, where online typically accounts for between 31 per cent to 52 per cent. “Most market experts believe online grocery retailing [in Korea] still has room to grow. So during the next five years or so, I believe there is a good chance that online will take the biggest market share among all grocery retailers. Also, supermarkets and convenience stores are growing at the expense of hypermarkets,” Kwon said. “In more fancy business jargon, online, proximity and convenience, are winning over scale and range in Korea.”‘It’s not a matter of if or whether, it’s a matter of when’Kwon is adamant that the sort of online channel disruption of grocery shopping seen in Korea will eventually occur in all markets. “It is not a matter of if – it’s a matter of when.”Key to the sector’s growth, he believes, was the evolution of pureplay online grocers creating new services. Since Covid, services such as dawn delivery have evolved, restaurant deliveries have boomed and consumers in city areas now expect grocery deliveries within 30-minute or 60-minute turnaround times.“As long as the customer wants it, either a new online player or an incumbent gets the service right and the market will evolve to include these new services sooner than you might think.”One salient factor in the growth of South Korea’s e-commerce sector is the high concentration of consumers – and their embrace of technology. Almost two-thirds of South Koreans live in apartment complexes which makes delivery easier and cost-effective for retailers. The nation also has one of – if not the lowest rates of porch parcel theft in the world, he said. “That means that a delivery person can leave a package in front of a customer’s home unattended, which again, enhances [the cost-effectiveness of] delivery.” But he believes the biggest driver is a vast investment in delivery infrastructure and last-mile logistics, right down to the development of a network of ‘dark’ supermarkets. Like dark restaurants that prepare food solely for delivery services, these are stores closed to shoppers, their staff purely picking, packing and shipping for delivery. That has proved a key enabler of sub-30-minute and sub-60-minute delivery. “Softbank has poured billions of dollars into building the Rocket delivery network across the country, which is the engine for Coupang Fresh [delivery service]. They have built a differentiated sourcing network and pioneered dawn delivery,” Kwon said.He did acknowledge that not every grocery e-commerce entrant has enjoyed success: “A few aggressive players seem to have succeeded, while most of the indecisive and hesitant players have failed miserably.” Before the advent of online grocery, local supermarkets delivered goods to loyal customers free of charge after a phone call, but that was a niche market. “Nonetheless, delivery ease was a major hurdle for online grocery retailing. Then someone came along and started offering free delivery when the basket went over US$29 in value,” he said.While these services made a loss, online players pushed forward and developed a means to offer deals and incentives to increase the basket size, along with ways to increase delivery density. Both measures reduced the unit cost of delivery, enabling profitability. Lessons for battleKwon advises retailers in markets where online grocery retailing remains in its early stages to focus first on creating demand, then work their way into profitability.“When you have 25 per cent of your customers attracted online … the first mistake you make is to offer every service there is in a hurry. But, we found that getting all of them right is extremely difficult. You need to align your product promotions and service levels and work around your chosen customer value proposition. “A critical lesson we learned is to choose your battlefield wisely and win that battle in any way you can to survive. If you try to become a core for all customers’ options, you end up shooting a shotgun instead of becoming a sharpshooter. You may end up getting something right, but the investment risk and costs are too high,” he continued.“Do not try to deliver the entire world of online grocery retail – become a winner in a specific area. If your online grocery market is still nascent, you may have some time and opportunity to win multiple battles. But one thing to remember is that winning a battle takes time and a lot of energy. Depending on how many competitors are present in the battle and what they are doing it may be wiser to pick a different battle.”Ian Wonshik Kwon was a speaker at the NRF Big Show 2024 Apac edition held in Singapore last month.