GS Supermarket deducted 5% of Hanwoo delivery payments as 'Order Incentive'... Fair Trade Commission imposes a 5.4 billion KRW fine

Maximum Fine for Unfair Practices in the SSM Sector
Shifting Return and Sales Promotion Costs to Suppliers

[Sejong=Asia Economy Reporter Joo Sang-don] The Fair Trade Commission has decided to sanction GS Retail, which operates GS Supermarket, a corporate-type supermarket (SSM), for various unfair practices, including unjustly deducting 5% of the monthly purchase amount from Korean beef suppliers under the pretext of order promotion fees.

On the 14th, the Fair Trade Commission announced that it would impose corrective orders (including notification orders) and a fine of 5.397 billion KRW on GS Retail for violating the Large-scale Distribution Business Act on a large scale.

GS Retail is the first corporate-type supermarket in Korea and operates 308 stores nationwide as of December 2018. With annual retail sales exceeding approximately 8 trillion KRW, it qualifies as a "large-scale distributor" under the Large-scale Distribution Business Act, which applies to retailers with retail sales of 100 billion KRW or more in the previous year, making it subject to the Act's regulations.

According to the Fair Trade Commission, from January 2016 to May 2018, GS Retail collected a total of 3.885 billion KRW by uniformly deducting 5% of the monthly purchase amount from all Korean beef suppliers it transacted with at the time of payment, without justifiable reasons, under the name of order promotion fees.

The order promotion fees collected by GS Retail correspond to basic incentives that guarantee a certain rate or amount of profit to large-scale distributors even if the suppliers' profits decrease. The Fair Trade Commission views these basic incentives as illegal because large-scale distributors receive these sales incentives regardless of a decrease in suppliers' delivery volumes, showing very little connection to the purpose of sales promotion.

GS Retail also used suppliers' employees without prior agreement on dispatch conditions. From May 2015 to April 2018, while opening new stores or renovating existing ones, GS Retail received a total of 1,073 employees from 46 suppliers without prior agreement on employee dispatch conditions and had them work at its business sites. This act violates the Large-scale Distribution Business Act, which generally prohibits large-scale distributors from using suppliers' employees. However, if exceptional reasons apply, dispatch conditions must be agreed upon in advance.

From August 2016 to April 2018, GS Retail returned a total of 1,131,505 products (purchase amount approximately 5.6 billion KRW) to 128 suppliers with whom it had direct purchase relationships, without agreeing on specific return conditions for products sold intensively during certain periods or seasons. During the same period, GS Retail also processed 1,406,689 products (purchase amount approximately 3.2 billion KRW) from 137 suppliers as voluntary returns by the suppliers without objective evidence that it directly benefited GS Retail.

Additionally, GS Retail unjustly collected 35.3 billion KRW in sales promotion fees not included in the annual basic transaction contracts and conducted promotional events without prior agreement, passing these costs onto suppliers.

A Fair Trade Commission official stated, "This case uncovered numerous violations of the Large-scale Distribution Business Act, such as large-scale distributors returning goods at their convenience under the guise of 'mutual customs,' collecting basic incentives, and using suppliers' employees." The official added, "We plan to monitor whether GS Retail improves its business processes and strives for fair trade with suppliers to prevent recurrence of the same legal violations."

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