"To Buy Baemin, Sell Yogiyo"... Fair Trade Commission Views Market Limited by Delivery Apps and Sees Coupang Eats as Less Competitive

Fair Trade Commission Grants 'Conditional Approval' for DH's Acquisition of Woowa Brothers

Baemin-Yogiyo Market Share 99%... Competition Restricted if Companies Merge
Difficult to See Competitive Pressure from Coupang Eats, etc.
"Yogiyo to be Sold Within 6 Months... Extension of 6 Months if Unavoidable"

Chairman Jo Sung-wook of the Fair Trade Commission is giving a briefing on the DH-Woowa Brothers' corporate merger at the Government Complex Sejong on the 28th.

[Asia Economy Reporter Joo Sang-don] The Korea Fair Trade Commission (KFTC) has made a final corrective order requiring Delivery Hero (DH) to sell 'Yogiyo' if it wants to acquire Woowa Brothers (hereafter Woowa). The key point in the merger review was limiting the relevant market to delivery applications excluding phone orders, where the combined market share of DH and Woowa would reach 99%, thus restricting competition in the delivery app market. The KFTC also viewed the competitiveness of latecomers like Coupang Eats, as claimed by DH, to be weak.

On the 28th, the KFTC announced that it conditionally approved the merger in which DH acquires about 88% of Woowa's shares.

Chairman Cho Sung-wook of the KFTC said, "We judged that there is a significant concern about competition restrictions affecting various stakeholders in the multi-sided market mediated by delivery app platforms, including restaurants, consumers, and riders (delivery workers). Therefore, we decided to impose a measure requiring DH to sell all of its shares (100%) in DH Korea." He added, "This will maintain the competitive relationship between Baemin and Yogiyo, enhancing consumer welfare and promoting innovative competition, while allowing the merger between DH and Woowa to achieve synergy effects through cooperation between DH's technological capabilities and Woowa's marketing skills."

Previously, on December 13, 2019, DH signed a contract to acquire about 88% of Woowa's shares and filed a merger notification with the KFTC on December 30 of the same year.

The KFTC limited the relevant market to delivery apps during the merger review. Chairman Cho explained, "Considering differences in functions and utility, as well as substitutability from the perspectives of consumers and restaurants, we defined the market as 'delivery apps,' distinct from direct phone orders, franchise restaurant apps, and internet search services." He further explained, "Delivery apps are differentiated from other services by various features such as providing information and search functions for general and franchise restaurants, user reviews and ratings, discount benefits, and convenient non-face-to-face payment."

Additionally, the KFTC noted that consumers who have used delivery apps tend to continue using them due to app lock-in effects, functional convenience, and discount benefits. Restaurants also tend to spend most of their advertising budget (85.9%) on delivery apps, reducing expenditures on other advertising methods like flyers. These factors supported limiting the relevant market to delivery apps.

Based on this, the KFTC found that the DH-Woowa merger would restrict competition. The KFTC presumes competition restriction if a company has a market share of over 50%, is ranked first, and the gap with the second-ranked company is at least 25% of its own market share.

Accordingly, the combined market share of the two companies was 99.2% based on 2019 transaction amounts, ranking first, and the gap with the second-ranked Kakao Order was over 25 percentage points, leading the KFTC to presume competition restriction. Although Coupang Eats' market share has recently increased in some areas of Seoul, its nationwide market share in the relevant market remains below 5%. The KFTC concluded that Coupang Eats does not yet exert sufficient competitive pressure nationwide on the merging companies.

Chairman Cho emphasized, "If a strong competitor engaged in discount promotion competition is removed, coupon discount promotions for consumers may decrease, or commission discount competition to attract restaurants may shrink, potentially leading to commission increases for existing partner restaurants." He added, "We confirmed that restaurants, which rely significantly on sales through the merging companies' delivery apps, are likely to continue using these apps even if commissions increase."

Therefore, the KFTC imposed a structural remedy requiring DH to sell all its shares in DH Korea to a third party within six months from the date of the corrective order. However, if unavoidable circumstances prevent the sale within this period, DH may apply for an extension of up to six months. In other words, DH must sell DH Korea within a maximum of 12 months.

The KFTC also imposed behavioral remedies to maintain the status quo until the sale is completed. This is to prevent deterioration in the quality and competitiveness of the Yogiyo delivery app service and to preserve the value of the assets to be sold. Specifically, these include: separation and independent operation of Yogiyo and other delivery apps of the merging companies; prohibition of changes to the effective commission rates applied to restaurants; mandatory use of promotion amounts equal to or exceeding those of the same month in the previous year for consumers and prohibition of discrimination; prohibition of changes to delivery app connection/access speed, user interface layout, information items provided, and forced or incentivized switching to affiliated delivery apps of the merging companies; prohibition of unfavorable changes to working conditions of Yogiyo delivery workers and inducement to Woowa; and prohibition of transfer and sharing of information assets.

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