Lotte Chilsung Beverage accuses prosecution of boosting wine subsidiary

Lotte Chilsung Beverage was sanctioned by the Fair Trade Commission for unjustly supporting MJA Wine (MJA), a subsidiary that sells wine in department stores. After MJA was incorporated into Lotte Chilsung, it suffered so much that it fell into complete capital erosion twice, but the FTC’s judgment is that it maintained the second place in market share based on the support of Lotte Chilsung.

The Fair Trade Commission announced on the 6th that Lotte Chilsung and MJA imposed a correction order and a fine of 1.18 billion won for violations of the Monopoly Regulation and Fair Trade Act (Fair Trade Act), and that Lotte Chilsung will file a complaint with the prosecution. It is revealed that Lotte Chilsung has contributed about 3.5 billion won in profit to MJA since 2009 by supplying wine to MJA at low prices, paying the cost of MJA’s salesperson service, and putting its employees into MJA business.

According to an FTC investigation, Lotte Chilsung has owned MJA, a retail corporation since 2009, when it was not possible to directly sell alcoholic beverages under the Liquor Tax Act. Although it is not possible to sell wine directly, it was advantageous for business expansion such as securing wine import rights with the symbolism of’wine in department stores’ obtained through MJA. However, as MJA fell into total capital erosion in 2009 and 2013, it became unclear whether it would be possible to continue the distribution of wine in department stores, and Lotte Chilsung began to directly support it.

To improve MJA’s profit and loss, Lotte Chilsung first set the discount rate for wine supplied to MJA higher than that of other customers and traded. As a result of Lotte Chilsung’s cheap supply of wine, MJA’s gross profit increased by about 3.5 times from 1,123 million won in 2012 to 5,097 billion won in 2019.

In addition, since September 2009, Lotte Chilsung has directly paid the cost of hiring promotional personnel from service providers by MJA. In 2012, Lotte Chilsung’s own internal audit pointed out that it was unfair support for its subsidiaries, but it turned out that Lotte Chilsung continued its support activities until 2017.

Although sales increased with the support of Lotte Chilsung, MJA directly hired only two employees who performed simple tasks such as closing slips at the end of the month, but the key tasks such as planning and sales related to the wine retail business were handled by Lotte Chilsung employees. MJA also did not pay for this process.

With artificially improved financial and profit and loss conditions, MJA has steadily increased the number of stores, operating stores in 45 department stores by 2019, maintaining the second largest market share. The Fair Trade Commission pointed out, “If there was no support from Lotte Chilsung, it was highly probable that MJA would naturally be expelled from the market in 2009.”

“(Lotte Chilsung’s unfair support act) was artificially maintained a company that had to be expelled according to the market competition principle, even if it was a 100% single-mother and child company relationship,” said the head of the Fair Trade Commission’s corporate group director. He pointed out that it is an act that hindered the competitive base by giving it an advantage over other companies in the wine retail market of participating department stores.”

The Fair Trade Commission said, however, that it has not been confirmed that the circumstances of the involvement of the Lotte General Family in this unfair support act. Director Yuk said, “As a result of investigating various decisions and instructions made internally, we could not find the situation of intervention by the family members. I didn’t” he explained.

Sejong = Reporter Seongbin Lim [email protected]