Korea’s GS Retail fined $18.7 million over unfair dealings with contractors

South Korea’s antitrust regulator on Tuesday slapped GS Retail Co., a GS Group unit that operates the country’s second-largest convenience store chain, with 24.4 billion won ($18.7 million) in fines and ordered it to correct its unfair business practices in dealing with its contracted fresh food suppliers.

The Korea Fair Trade Commission (FTC) said GS Retail, which operates 13,818 GS25 stores across the country, violated the Subcontracting Act that bans retailers from demanding contractors pay them off in business transactions without legitimate grounds.

The fine represents the FTC’s first heavy penalty involving private brand (PB) products since the enactment of the Large-Scale Distribution Business Law in 2012, and the highest amount the antitrust regulator has ever imposed on a retailer in violation of the Subcontracting Act.

According to the commission, GS Retail, a unit of energy-to-retail conglomerate GS Holdings Co., extorted a total of 19.5 billion won in sales incentives and promotion fees from eight fresh food suppliers between November 2016 and September 2019.

GS Retail also took 2.74 billion won in “information provision fees” from them between February 2020 and April 2021, the FTC said.

The GS25 convenience store operator received the money knowing that the suppliers would be in trouble financially amid worsening business conditions, it said.

The antitrust body said the fresh food suppliers had no need to pay GS Retail sales incentives and promotion fees as the contractors made gimbap, or seaweed-wrapped rice rolls, burgers, sandwiches and other fresh snacks only for the retailer, under a private brand, or private label, manufacturing contract.

Regular information provision fees also weren’t needed as the contractors, which nearly entirely rely on GS Retail for their business, had just followed the retailer’s routine manufacturing instructions, the commission said.

“We’ll continue to closely monitor GS and other large retail business operators to root out unfair business practices,” the FSC said in a statement.

The regulator launched its investigation into the case in October 2019.

GS RETAIL MULLS AN APPEAL

GS Retail expressed regret over the FTC's decision, saying that entrusting its fresh food suppliers with the manufacture of its PB products should not be subject to the Subcontracting Act.

“We will decide whether or not to lodge an appeal after reviewing details of the regulator's measures,” said a GS Retail official.

Shares of GS Retail finished 1% lower at 24,700 won on Tuesday, compared with the broader Kospi index’s 0.5% fall.

The company’s stock has underperformed the broader market following a spate of investments to strengthen its last-mile delivery services and increase its online presence, utilizing its nationwide convenience store and supermarket network.

Last year, GS Retail acquired a stake in Mesh Korea Co., which runs the quick delivery service provider Vroong, and shares in the country's No. 2 food delivery app Yogiyo.

It has also invested 65 billion won in Kakao Mobility Corp., Korea’s No. 1 taxi-hailing app operator.

GS Retail’s GS25 is Korea’s second-largest convenience store chain after the country’s top player CU, operated by BGF Retail Co.

Write to So-Hyeon Kim and Dong-Hui Park at alpha@hankyung.com
In-Soo Nam edited this article.