Discount Gas Stations Double Closure Risk for Regular Stations, Study Finds

The gas station industry is vocal about discount gas stations pushing regular gas stations towards shutdown. (Image courtesy of Yonhap)

SEOUL, Nov. 7 (Korea Bizwire) – As the South Korean government decides to expand “altteul” or discount gas stations, concerns are on the rise among owners of regular gas stations. The gas station industry is vocal about discount gas stations pushing regular gas stations towards shutdown. 

According to the results of a recent local study, discount gas stations more than double the risk of closure for regular gas stations.

In a paper published by professor Hwang Hyeon-jun from the Data Science Graduate School at Kyungpook National University and Chang Yen-jae, vice president of the Korea Energy Economics Institute, it is emphasized that the entry of discount gas stations into the market raises the risk of closure for nearby regular gas stations. This supports the concerns of the gas station industry that discount gas stations pose a threat to the survival of regular gas stations. 

The research team analyzed 21,932 gas stations and price information collected through Opinet, a fuel price information service offered by the Korea National Oil Corporation, during the period from January 2010 to February 2020.

The analysis revealed that an average of 7.2 regular gas stations are located within a 2-kilometer radius of discount gas stations. The average closure rate for regular gas stations stood at 50 percent, while that of discount gas stations remained low at 17 percent.

If discount gas stations enter within a 2-kilometer radius of regular gas stations, the risk of closure for the latter increases by an average of about 2.56 times. 

Discount gas stations pose a more significant risk to existing discount gas stations. If a new discount gas station is established near an existing one, the risk of business closure more than quadruples. 

Regular gas stations can protect themselves from price competition by leveraging the brand effect of major oil refiners or offering additional services. However, there is little differentiation in services among discount gas stations, ultimately leading to intensified competition.

Kevin Lee (kevinlee@koreabizwire.com)