In order to improve profit and loss of MJA wine, supply at a low price, pay for promotional expenses, and put in own manpower
Fair Trade Commission “Hinders fair trade order for a long period of time”… Impose a penalty of 1.1 billion won
Lotte Chilsung “I will explain the controversy after receiving and reviewing the final opinion”
The Fair Trade Commission (Chairman Cho Sung-wook, hereinafter the Fair Trade Commission) said that Lotte Chilsung Beverage imposes a fine of 1.1 billion won or more for acts of unfair support for a long period of time, such as supplying wine at low prices to MJA wine, a subsidiary that sells wine in department stores. It was revealed on the 6th.
According to the FTC announcement on the day, Lotte Chilsung supplied wine to MJA at low prices by applying a high discount rate to the wine supply price in order to improve profits and losses of its subsidiary MJA. In addition, MJA’s salesperson service costs are not only covered, but its own manpower has been put into the MJA business.
The FTC explained that such unfair support activities have continued for more than 10 years since 2009, and that a total economic profit of 3.5 billion won was provided to MJA.
Specifically, when MJA Wine fell into complete capital erosion in 2011, Lotte Chilsung continued to discount the cost of wine supplied to MJA Wine from January 2012. Accordingly, the cost ratio fell from 77.7% in 2017 to 66% in 2019, and MJA’s gross profit increased significantly from 1,123 million won in the same period to 5,097 billion won in 2019.
Since September 2009, Lotte Chilsung has also paid for MJA Wine’s promotional staff service costs. In addition, we entrusted our employees with core tasks such as planning and sales of MJA Wine. According to a survey by the FTC, MJA Wine directly hired only two employees who did simple tasks such as closing slips at the end of the month, and Lotte Chilsung employees did the rest.
In July 2009, one year after the start of the wine retail business at the department store, MJA Wine fell into complete capital erosion, and in 2013, the financial position continued to deteriorate. It was very unclear whether or not to maintain the business.
However, the FTC announced that Lotte Chilsung has continued such unfair support activities for more than 10 years in order to improve profits and losses of MJA wines and to maintain the department store sales channel. As a result, MJA’s financial and profit and loss status improved, and its competitive conditions became more favorable than other business operators, thereby maintaining its position as the second largest business operator in the market share.
The Fair Trade Commission pointed out that “the continued unfair support behavior has hampered the fair trade order in the market, such as blocking opportunities for other competitors to enter the department store wine retail market.”
The market has a lot of participation from small and medium-sized businesses. Major operators include No. 1 Wine Concierge, Ayoung FBC, Naracella, and Shindong Wine. In the case of MJA Wine, the FTC asserts that it was able to gain a competitive edge by using the financial power and organizational power of large corporate groups, which SMEs cannot enjoy.
The Fair Trade Commission imposed a penalty for unfair support activities of Lotte Chilsung. For Lotte Chilsung, it is 770 million won, and MJA wine is 475 million won, for a total of 1.187 billion won. Along with this, Lotte Chilsung Beverage Corporation was accused of prosecution.
Lotte Chilsung is in a position that it will fully explain the controversy after reviewing the final contents of the FTC’s measures.
An official from Lotte Chilsung said, “I worked hard on the investigation by the FTC,” and said, “After receiving the final opinion, we plan to review the content and explain the controversial part.”
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