|A CU convenience store run by BGF Retail. / Courtesy f CU|
The operator of Korea's No. 2 convenience store chain CU was slapped with a hefty fine for forcing its suppliers to shoulder excessive costs for sales promotions, according to the antitrust agency, Thursday.
The Fair Trade Commission (FTC) said it fined BGF Retail 1.67 billion won ($1.42 million) for violating the Act on Fair Transactions in Large Retail Business while running so-called "two-for-one" promotion events from January 2014 to October 2016.
According to the FTC, BGF Retail operated the events on several products at more than 13,000 CU branches across the country every month during the period.
In 338 promotions, BGF Retail forced 79 suppliers to pay 2.39 billion won, which is more than half the total cost of the special offers. The act prohibits retailers from forcing suppliers to pay more than 50 percent of the total cost of an event.
In 76 events, BGF Retail did not provide a written agreement containing details to suppliers before launching the events, which is also a violation of the law, the FTC said.
"This is the first time that the FTC has punished a company for forcing suppliers to shoulder more than 50 percent of the cost for two-for-one events," an FTC official said. "The FTC will enhance monitoring and punishments for similar violations."
Other convenience chain operators also have been employing an aggressive free item strategy in recent years, which resulted in a sharp growth in their sales.
According to the FTC, the country's aggregated convenience store sales stood at 24.4 trillion won in 2018, showing twofold growth from 12.74 trillion won in 2014.
In its 2019 earnings report, BGF Retail said it logged 5.95 trillion won in sales and 196.6 billion won in operating profits, up 2.9 percent and 3.7 percent from a year earlier, respectively.
BGF Retail was running 13,169 CU stores across the country as of 2018.
The Korean convenience store industry is led by three top players ― GS25 by GS Retail, CU by BGF Retail and 7-Eleven by Korea Seven. GS25 is the leading chain with a 35.33 percent market share followed by CU with 31.14 percent and 7-Eleven with 20.5 percent.