Olive Young Files Fair Trade Commission Complaint... Coupang vs CJ, 'Hetbahn War' Escalates to Cosmetics (Comprehensive)

Complex Dynamics Surrounding Coupang vs CJ

1. Coupang vs Olive Young, Fair Trade Commission's Judgment on Supplier Abuse
2. Olive Young, Impact of FTC's Ruling as 'Dominant Player in H&B Market'
3. Escalation of Coupang vs CJ CheilJedang Price Conflict, Stakeholder Interests

On the 24th, Coupang reported CJ Olive Young to the Fair Trade Commission (FTC) for violating the Large-Scale Distribution Business Act, drawing attention to the power dynamics surrounding them. Interest is focused not only on the veracity of Coupang's claim that "CJ Olive Young engaged in power abuse against suppliers," but also on the FTC's ongoing assessment of whether CJ Olive Young is a dominant player in the health and beauty (H&B) market, separate from this case. The industry is also watching how Coupang's report will affect both Coupang and CJ CheilJedang, who have been engaged in a "Hetbahn dispute" over supply prices since last year.

[Image source=Yonhap News]

Issue 1. Coupang vs. Olive Young: Whether 'Power Abuse Against Suppliers' Occurred

On this day, Coupang reported CJ Olive Young to the FTC for violating the Large-Scale Distribution Business Act. Coupang claimed, "CJ Olive Young has continuously engaged in power abuse for years by blocking deliveries and transactions to Coupang through small and medium-sized suppliers to hinder Coupang's entry and growth in the beauty market." According to Coupang, when a small supplier informed Coupang of its supply, CJ Olive Young designated the supplier's popular products as "prohibited product groups" that cannot be supplied to Coupang, thereby obstructing deliveries. The Large-Scale Distribution Business Act Article 13 prohibits distribution companies from abusing their superior position to unfairly obstruct suppliers from trading with other distributors, effectively banning 'exclusive dealing.' CJ Olive Young is alleged to have violated this provision.

Coupang emphasized that CJ Olive Young holds a superior bargaining position over its suppliers. They cited as grounds for judgment that CJ Olive Young's annual sales exceed 2 trillion KRW, and that 80% of the products handled are sourced from domestic small and medium suppliers. Coupang stated, "Since 2019 until recently, exclusive dealing practices by CJ Olive Young have repeatedly caused deals with suppliers handling competitive products to fall through."

The FTC's judgment on whether power abuse occurred, as reported, is also drawing significant industry attention. In response, CJ Olive Young flatly denied Coupang's claims, stating, "We have never restricted our partners from entering any distribution channels, including Coupang."

Meanwhile, in 2021, Coupang itself received a corrective order and a fine of 3.297 billion KRW from the FTC for power abuse, such as demanding manufacturers like LG Household & Health Care, with whom it had direct purchase agreements, to raise prices on other distribution channels. Coupang is currently pursuing a lawsuit to cancel the FTC's corrective order.

Issue 2. Whether CJ Olive Young is a 'Market-Dominant Business Operator'

Coupang's report to the FTC may introduce new variables into the existing FTC investigation. CJ Olive Young is under investigation for allegedly forcing suppliers into exclusive dealings, preventing them from supplying products to offline H&B competitors such as Lalavla and LOHB's. The FTC is reviewing the application of the abuse of market dominance provisions under the Fair Trade Act and is preparing for a plenary session. The final review is expected as early as next month.

The key issue in the review is whether CJ Olive Young can be considered a 'market-dominant business operator' in the H&B sector. Even if similar power abuse acts occurred, market-dominant operators face heavier sanctions considering their impact on the entire market. CJ Olive Young argues that its market dominance is minimal, given that it competes not only with H&B but also with offline retailers such as department stores, and e-commerce companies like Coupang and Naver.

From this perspective, some voices suggest that Coupang's recent report ironically supports CJ Olive Young's claim of competing across both online and offline distribution channels. CJ Olive Young's offline H&B market share rose to 71.3% in the first quarter of this year after Lalavla and LOHB's exited the market. However, when expanding the scope to include all online and offline beauty competitors, CJ Olive Young's market share drops to about 12% of the domestic cosmetics market size (22.5 trillion KRW) based on 2022 Statistics Korea data.

Issue 3. Coupang vs. CJ CheilJedang 'Escalation'... Each Company's Interests

Coupang has recently strengthened its beauty business aggressively by opening a luxury beauty brand exclusive section called 'Rocket Luxury' and holding various promotions focusing on small and medium-sized enterprises. Meanwhile, CJ Olive Young has been expanding its presence in the online market since 2018 by launching the 'Today Dream' service, which delivers products ordered from its online mall to customers within three hours, competing with Coupang's biggest strength, fast delivery (Rocket Delivery).

Some interpret that as Coupang strengthens its beauty business, it is not only checking competitor CJ Olive Young but also escalating the conflict with CJ CheilJedang, with whom it has had ongoing supply price disputes, to a full-scale battle at the CJ Group level. CJ Olive Young is also a key affiliate drawing attention in the succession process for Lee Sun-ho, the eldest son of CJ Group Chairman Lee Jae-hyun, who is expected to inherit the group leadership.

CJ CheilJedang has not sold some products, including instant rice, on Coupang since the end of last year due to supply price conflicts. Instead, it is expanding its 'anti-Coupang front' by strengthening partnerships with other distributors such as Shinsegae Group, 11st, and Kurly. In response, Coupang is sharpening its stance against CJ CheilJedang with promotions like the '100 KRW instant rice deal.'

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