GS Retail ordered to pay $18.7M in fine for unfair business dealings

GS Retail Co. has been fined KRW24.4 billion or around $18.7 million, due to unfair practices related to its business dealings with contractors. South Korea’s Fair Trade Commission (FTC) revealed on Tuesday, Aug. 2, that it decided to penalize the supermarket chain company that operates GS25 convenience stores in the country.

As per Yonhap News Agency, aside from the hefty fine, GS Retail Co. was also slapped with a correction order for violations of the “Act on Fair Subcontract Transactions” (Subcontract Act). This means that the FTC also demanded for the company to correct its unfair practices when dealing with its contracted fresh food suppliers.

The anti-trust regulators determined that the company received a total of KRW19.5 billion from eight of its contractors or suppliers for what GS Retail said are for promotion costs and other fees that were collected between November 2016 and September 2019.

The contractors likely agreed as the company entrusted them with the manufacturing of its own brand of fresh food products such as gimbap, rice rolls, and sandwiches which were sold at its convenience store outlets. The FTC explained that GS Retail collected KRW6.87 billion in performance incentives from the mentioned period, and this was carried out without any justifiable reasons.

The commission did not see any valid reason for GS Retail to receive such fees from its subcontractors. This is because the performance incentives are normally the money handed out by suppliers to distributors to encourage them to buy their own products.

It was added that GS Retail also collected a similar fee amounting to KRW2.74 billion from suppliers in the months between February 2020 and April 2021. And again, the FTC said this was obtained without proper reasons.

With the findings, the FTC ruled that the GS25 convenience store operator violated the Subcontracting Act, which prohibits retailers from asking contractors to give economic returns without valid justifications.

The Korea Economic Daily reported that provision fees are not required as the contractors just followed GS Retail’s routine manufacturing instructions. It was noted that these suppliers mainly rely on the supermarket chain company to keep their business going. Finally, in response to FTC’s decision, GS Retail is considering filing an appeal as it expresses regret for the outcome of the investigation that was launched in 2019.