A wine store in a hypermarket in Seoul last month. yunhap news
Lotte Chilsung was charged with the prosecution for unjustly supporting a subsidiary that sells wine in a department store. The subsidiary suffered from capital erosion twice after it was acquired by Lotte Chilsung, but Lotte Chilsung was ranked second in the industry by providing a profit of 3.5 billion won.
The FTC announced on the 6th that Lotte Chilsung imposed a total of 1.1 billion won in fines along with a corrective order for the act of unfairly supporting its subsidiary MJA wine, and decided to accuse Lotte Chilsung to the prosecution. MJA is a wholly-owned subsidiary of Lotte Chilsung, and it was incorporated with Lotte Chilsung when it acquired the liquor business from Doosan in 2009.
According to the FTC, MJA fell into full capital erosion in July 2009, a year after the start of department store wine retailing. Since then, in 2013, the financial position continued to deteriorate, with complete capital encroachment again. It means that the management performance was not so good that it would not be strange even if it was expelled from the market.
Lotte Chilsung provided unfair support to MJA. First, we applied a high discount rate to the company’s wine supply price and supplied wine to MJA at a low price. In addition, employees of Lotte Chilsung were mobilized for MJA planning and sales activities to intentionally reduce labor costs.
Lotte Chilsung also paid MJA’s sales promotion service cost instead. In particular, it was pointed out that such an act corresponds to’unfair support for subsidiaries’ in its own internal audit, but it was not corrected. The Fair Trade Commission said that Lotte Chilsung provided a total of 3.5 billion won in economic profit to MJA in this way.
The effect of unfair support was clear. The number of MJA stores increased from 2 in 2009 to 29 in 2012, and operating profit turned from a loss of 11 million won to a surplus of 12 million won during the same period. As of 2019, MJA operates a wine retail business in 45 department stores, with market share rising to the second place.
There was a realistic reason that Lotte Chilsung did not directly sell wine. It was investigated that there was a rule that liquor importers could not conduct liquor distribution and sales until February 2012, and even after the rule was abolished, Lotte Chilsung was concerned about’deteriorating public opinion over the entry of large companies into the retail business. The circumstances of the involvement of the Lotte Group chief’s family in this unfair support have not been confirmed.
“The act of supporting this incident has hampered the fair trade order in the market, such as blocking the opportunity for other competitors to enter the department store wine retail market.” Using the financial power and organizational power of large corporations, we were able to avoid exit and gain a competitive edge,” he explained.
Sejong= Youngha Son reporter [email protected]
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