Coupang Helps Small Businesses Succeed in the World of E-commerce

Selling fresh produce from an island to the whole nation

In 1995, when then-33-year-old Kim Jeong-yeol started his fruit and vegetable farm on Korea’s Jeju Island, he had a lot to learn. Jeju was his home, so he knew his way around. But his parents had run a factory and he was completely new to farming.

“The first year or two I went to visit acquaintances who were farmers and learned from them,” he said. “I’d stay up all night studying. I even went up to the Agriculture Promotion Office in Suwon and asked about how to do things.”

He has been producing radishes, tangerines and hallabong, the seedless sweet mandarin oranges, for 25 years now, so he’s something of a veteran. Along the way, he has expanded his vision. In 1998 he began farming organically and in 2004 he founded the Neuyeong Nayeong Farmers’ Cooperative as a way to promote the growth and sale of organic produce.

“Neuyeong Nayeong is Jeju dialect for ‘with you and me,’” he explains. “It means we can’t do it alone but together we can.” The cooperative Kim founded became the first to supply environmentally friendly fruits and vegetables for school meals around Korea. It now has 54 full and 100 associate members growing a wide variety of citrus fruits and vegetables. It also sells to a chain of greengrocers run by Nonghyup, the National Agricultural Cooperative Federation.

Last year, by chance, Kim heard that Korea’s largest e-commerce platform Coupang had asked a small Jeju-based rice cake company to supply product.

“The owner didn’t have any distribution capacity because he was working on a small scale. So he asked around if someone could handle the distribution for him, and that’s how we got introduced,” Kim said.

Kim was in for a surprise. By March this year, his profits had tripled. It was the height of the coronavirus outbreak. Millions were working from home. Restaurants and tourism-related businesses were collapsing, but even though schools were closed and didn’t need their usual supplies of fresh fruit and vegetables, the Neuyeong Nayeong Farmers’ Cooperative was somehow staying afloat.

“We thought about getting online before, but it was such a big challenge that without Coupang, we couldn’t have done it,” Kim explains. “Without the online business, we’d have had to focus all our sales efforts on school meals or auctioning on the open market.”

What Kim likes most is that it is the customers who directly rate the products. “The customers determine everything,” he says. “If they’re happy, we’ve grown our produce well. If they’re not, we need to look at our methods again.”

“The larger distribution companies mainly deal with large producers and they always haggle,” he explains. “But Coupang gives small and medium-sized businesses a chance to sell their products and to use their own brand name so that they can build a reputation with consumers, and that helps them to grow.”

Helping 53,000+ small businesses grow

Originally founded in 2010 as an online daily deals business where customers could find and even make discounts on goods and services, Coupang grew into a third-party marketplace that sits between producers and consumers. Now roughly half of the Korean population is a customer, and many people around the country receive everything from cooking ingredients to ready-to-eat meals, toiletries, books, and printer ink delivered to their homes through the platform’s Rocket Delivery service.

Coupang has identified more than 53,000 small businesses, defined as a company with KRW3bn or less in annual turnover, and keenly follows their progress, providing logistical support and offering help where needed. It turns out that seven out of 10 of Coupang’s business partners fall under this classification, making up half of daily sales in terms of items sold. The top three categories of items sold by small businesses are food, clothing and furniture. At the current rate of new producers joining the platform it is expected that the number of small businesses will reach 100,000 in the near future.

Small businesses on Coupang create jobs, too. To date, 77,000 jobs have been generated – more than double the 37,584 employees who work directly for Coupang – and just 26,000 were generated in 2019 alone.

According to publicly available statistics, these small businesses together are growing faster than the e-commerce platform itself, 81 percent compared to 61 percent growth, with approximately one in five small businesses experiencing more than double the growth of the website. Commenting on this phenomenon, Associate Professor of Business Administration at Gacheon University Jeon Seong-min says, “This virtuous cycle in which Coupang’s growth is driven by the accomplishments of small businesses will have a positive impact in the e-commerce ecosystem overall.”

The assistance provided to these small businesses falls into four types. First, Coupang handles customer service for them 24/7. Instead of someone at one of the cooperative farms on Jeju Island receiving a call about an order that needs to be returned or exchanged, a specially trained staff member does it.

Second, the platform provides a simple sales and payment system that makes it easy for customers to order and pay for goods from a variety of sellers without having to make several individual purchases.

Third, logistics and storage are also served by an infrastructure of hubs around Korea that, in total, equals the size of 277 soccer stadiums and which forms the backbone of Coupang’s distribution system.

Fourth, the Rocket Delivery service packages the items into boxes and delivers them to the customers either the next day at dawn or in some cases on the same day.

“In an e-commerce market, when sales grow threefold, operating expenses increase by an average of 2.6 times,” says Prof. Yoo Byung-joon of Seoul National University’s College of Business Administration. “However, Rocket Delivery can mitigate a significant portion of the costs previously incurred by the seller based on its direct purchase system, thereby increasing the operating profit of the small business.”

The net effect of all this assistance is that small businesses can focus on their core business while letting the e-commerce platform take care of the back-office tasks.

Quality pork delivered

A case in point is K-Pride, a pork product purveyor taking full advantage of the help that Coupang offers. CEO Kim Do-yeong says his product is shipped daily to a distribution center from where it is delivered to customers.

“The platform expressed its intention to grow together with our company and this allowed me to place full trust in them and follow their lead,” he said.

K-Pride was founded in 1999, sourcing antibiotic-free pork from local pig farms and turning that into cuts of pork and other products for the domestic market. “Most of our business was offline till we joined Coupang, so we could have survived without it,” Kim explains. “But, given the current state of the market and consumer behavior patterns, if we hadn’t responded by shifting our focus and growing online, our business wouldn’t be doing as well as it is.”

Of the 40 percent of K-Pride’s online sales, three quarters come from Coupang. Overall turnover has seen a growth of almost one third since joining the platform. At the moment, K-Pride’s sales are still 60 percent offline, but if trends continue as they are now, that ratio will soon flip.

Stationery but not stationary

Dada, a small business producing and selling stationery items – everything from children’s crayons and drawing pads to Stanley knives and correction tape – has already made that flip, and in March 2020 it posted year-on-year growth of a staggering 600 percent. This year it’s expecting to see annual turnover reach 3 billion won.

The CEO and founder of Dada, Jeong Chan-hoe, puts it very simply, “Without Coupang, business would have been very hard.” He goes on to say, “It’s a very efficient platform. For the cost of selling one item online normally, we’re able to sell 10 here. That reduces overall costs and helps us to set our prices competitively to offer goods that are cost effective to consumers.”

The site also assists small businesses proactively by suggesting new products to them that they are not yet producing, but that their existing products suggest would be easy to turn out. Says Jeong, “Of course we’re doing our own market research as well, but we’re grateful when Coupang points out an opportunity that we hadn’t even thought of.”

Balanced national growth

There’s an interesting spillover effect of all these 50,000+ small businesses selling their wares nationwide through an online platform: it decreases the pressure to locate the base of their operations in or around Seoul. For so many decades, Korea’s growth center was its capital region, and for a company to grow it had to at least have an office or distribution center there.

Now, by hooking up to and taking advantage of Coupang’s distribution infrastructure, local companies don’t feel this need to centralize. Is this new trend helping to achieve, at least in part, a long-standing goal of many of Korea’s presidential administrations, namely balanced regional development?

Dada CEO Jeong Chan-hoe, whose company is headquartered in South Chungcheong Province, is sure: “No question about it, I think partnerships with small businesses are contributing to balanced regional development.” Asked whether he’s at a disadvantage because he’s not in the capital region, he answers, “In terms of transport situation and upkeep costs, I think we might be even better off here.”

Kim Jeong-yeol of Neuyeong Nayeong Farmers’ Cooperative agrees, saying, “Jeju is no longer an island. The capital is the furthest part of Korea from us, but because the distribution system is so well-built being far away is not a negative point at all.”

The same is true for Kim Do-yeong of K-Pride, who says, “We used to have a distribution center near the capital with our own trucks to do deliveries, but we just don’t need it anymore.”

Around six out of 10 of the small businesses working with Coupang are located outside of Seoul, with the highest revenue growth seen in Gangwon, North Gyeongsang, and Jeju Provinces. Measured in the first half of 2020, average year-on-year revenue growth in the provinces is 160 percent that of businesses located in the capital. This growth led to the creation of more than 20,000 jobs in local regions, according to estimates based on statistics published by the Bank of Korea. All this suggests that being based in and around Seoul may not bring the economic advantage it once did.

Overall, as the trend towards high growth in small and medium-sized enterprises continues, we may see the number of small businesses hit – and exceed – the predicted 100,000 quite soon.

Kang Hyoung-goo, assistant professor in the Department of Finance at Hanyang University Business School in Seoul, sees this trend in terms of social value, saying, “The social value created by Coupang as a platform is second to none in that it encourages its own business and the sellers to grow together.”

Speaking further to this idea, Sustainability Practice Lead Jake Jungnam Kim at KPMG Strategy Consulting Group comments, “Coupang’s business model creates value not only in terms of revenue for itself but also, and more so, for the customers, suppliers and local communities that are directly and indirectly involved in the process.”