The Fair Trade Commission imposes a corrective order and a fine of 1.187 billion won for the unfair support of Lotte Chilsung Beverage’s subsidiary MJ Wine Co., Ltd. It announced on the 6th that it was decided to do so.
The penalties for Lotte Chilsung Beverage were 770 million won and MJA 475 million won, respectively.
As a result of the FTC investigation, Lotte Chilsung Beverage incorporated MJA, a retail corporation, into its affiliates in April 2009 for the purpose of selling wine directly through retail channels such as department stores. This is because the Enforcement Decree of the Liquor Tax Act at the time banned liquor importers from combined business of liquor distribution and sales in order to secure transparency in the distribution of imported liquor.
However, MJA’s financial condition continued to deteriorate, falling into total capital erosion in July 2007 and 2013, one year after the start of the department store wine retail business.
Accordingly, Lotte Chilsung Beverage started to provide multi-faceted support such as △ low-cost supply of wine △ burden of dispatching sales staff expenses △ investment of core business such as wine retail planning and sales activities by its manpower to improve profit and loss of MJA.
As a result, MJA’s cost ratio improved from 77.7% in 2012 to 66% in 2019, and its gross profit also increased by about 3.5 times from 1,123 million won in 2002 to 5,097 billion won in 2019. Currently, MJA ranks second in the department store wine retail market.
The FTC estimates that Lotte Chilsung Beverage has provided excessive economic profits to MJA for more than 10 years since 2009 for a total of 3.5 billion won.
The FTC said, “Without the support of Lotte Chilsung Beverage, there is a high probability that MJA could not escape from capital erosion in 2009 and was naturally expelled from the market. He judged that he had a competitive advantage by avoiding the exit of the MJA.
He said, “In the future, we will thoroughly monitor the unfair support behavior of large corporate groups and deal with violations strictly.”