BGF Retail Caught Shifting 'N+1' Promotion Costs to Suppliers... Fined 1.67 Billion KRW

[Asia Economy Reporter Moon Chaeseok] BGF Retail, which operates the convenience store brand 'CU,' was caught by the Fair Trade Commission (FTC) for shifting more than half of the total promotional costs to suppliers over three years by holding monthly 'N+1' events. This is the first time a business violating the Large-Scale Distribution Business Act has been sanctioned.

According to the FTC on the 13th, from January 2014 to October 2016, BGF Retail shifted 2.3915 billion KRW?an amount exceeding 50% of the promotional costs?to suppliers in 338 events with 79 suppliers. The FTC announced that it imposed a fine of 1.674 billion KRW on BGF Retail and ordered measures to prevent recurrence.

During this period, BGF Retail selectively held N+1 events (offering one free product when consumers purchase N units of a specific product), giveaways, and price discounts. While giving away products supplied free of charge by suppliers through N+1 events to consumers, BGF Retail made suppliers bear the supply cost. BGF Retail only covered the distribution margin (the difference between consumer selling price and supply price) and promotional expenses (such as show card production and advertising costs).

However, as the total supply cost of the '+1' products from suppliers exceeded the sum of BGF Retail’s distribution margin and promotional expenses, the promotional costs borne by suppliers surpassed 50% of the total costs. According to Article 11, Paragraph 4 of the Large-Scale Distribution Business Act, large-scale distributors cannot impose promotional costs exceeding 50% on suppliers.

Additionally, BGF Retail did not provide written agreements regarding the burden of promotional costs to 44 suppliers before conducting 76 promotional events. The agreements must be in writing with signatures or seals from both BGF Retail and the suppliers, but the signatures were only completed after the promotional events took place.

According to Article 11, Paragraphs 1 and 2 of the Large-Scale Distribution Business Act, large-scale distributors cannot impose promotional cost burdens on suppliers without prior agreement before conducting promotional events. The agreement must be a written document signed or sealed by both parties, and the distributor must provide the agreement to the supplier simultaneously.

The FTC imposed a fine of 1.674 billion KRW on BGF Retail for shifting promotional supply costs and ordered measures to prevent recurrence. However, no fine was imposed for the delayed delivery of the written promotional event agreements. The FTC explained that it considered the company’s corrective efforts, including the detection of violations during internal compliance monitoring and the absence of similar violations after improving the electronic contract system in October 2017.

An FTC official stated, "This action is the first case of applying the Large-Scale Distribution Business Act to sanction a convenience store for shifting more than 50% of the N+1 event costs to suppliers. The FTC will continue to strengthen monitoring of similar cost-shifting practices by large-scale distributors such as convenience stores and impose strict sanctions when violations are detected."

This content was produced with the assistance of AI translation services.