Convenience store companies GS25, CU, 7-Eleven, and Emart have decided to reduce the penalties imposed on suppliers who failed to deliver on time. This comes after the Fair Trade Commission pointed out allegations of legal violations. As a result, the overdue penalties borne by suppliers are expected to decrease by up to 1.6 billion won per convenience store headquarters. The four convenience store companies will also establish a fund of 3 billion won to support suppliers.
On the 24th, the Fair Trade Commission finalized a consent decision regarding the allegations of legal violations related to the four convenience store companies' compliance with the "Act on the Fairness of Transactions in Large-Scale Distribution." A consent decision is a system where the Fair Trade Commission concludes a case without imposing a penalty surcharge when a business under investigation voluntarily commits to improving trading order.
In other words, the four convenience store companies proposed self-corrective measures to avoid penalties, and the government accepted this proposal. This case marks the first application of the consent decision system introduced under the large-scale distribution law in July 2022.
To evaluate the validity and appropriateness of the corrective measures submitted by the four convenience store companies, the Fair Trade Commission collected opinions from suppliers, convenience store franchise owners, and relevant ministries such as the Ministry of Trade, Industry and Energy and the Ministry of Small and Medium Enterprises and Startups over the course of a month starting last November.
The main content of this consent decision is that the penalties for overdue payments imposed by the four convenience store companies have been reduced from 20-30% of the overdue amount to a level similar to that of large supermarkets (6-10%). The overdue penalties for suppliers are shared between the convenience store headquarters and franchise owners, with only the headquarters' share being reduced.
The ratio between headquarters and franchise owners differs by company but is typically 3 to 7. The Fair Trade Commission decided to maintain the amounts attributed to franchise owners to avoid disadvantaging them. As a result of this measure, the overdue penalties for convenience store headquarters are expected to decrease by 480 million to 1.6 billion won annually.
This consent decision also reduces the burden of incentive funds for suppliers to introduce new products. If a new product has been released within six months and there is a request from the supplier, the distributor will display the product on the shelf. In return, they receive funds from the supplier, which constitutes the incentive fund for new product introduction.
The existing criteria for the incentive fund for new products were favorable to convenience stores, as they applied to "products released within six months at each convenience store." From now on, only "products released within six months in the domestic market" will be eligible for the incentive fund for new products.
In this regard, Director General Lee Byeong-geon of the Fair Trade Commission noted, "In principle, the incentive fund should be proposed by suppliers in line with their own interests, but there have been instances where this has not been the case. There is a risk that large-scale distributors may unfairly gain benefits due to their superior position."
The four convenience store companies have decided to contribute 3 billion won to the Cooperation Fund for Large, Small and Medium Enterprises and Agriculture and Fisheries to support suppliers. They will also provide about 5.3 billion won worth of paid advertising and information services free of charge.
Convenience stores that do not comply with the consent decision will be subject to a penalty of 2 million won per day. They will also have to resume the Fair Trade Commission's regulatory procedures that were suspended due to the consent decision.
The Fair Trade Commission determined that the corrective measures align with anticipated sanction levels if violations are deemed to occur. They believe that swiftly implementing these measures accommodates the practical benefits for suppliers. The Fair Trade Commission reports that most suppliers are satisfied with the measures.
The Fair Trade Commission stated, "Along with the Korea Fair Trade Mediation Agency, we will closely monitor whether the four convenience store companies diligently implement this consent decision" and added, "We will continue to monitor unfair practices to establish a fair trading order in the distribution sector."