Coupang and CJ CheilJedang are fighting a fierce battle of nerves to take the lead in negotiating unit price and product supply margin rate. Coupang threw big power by stopping orders for big products from CJ CheilJedang, such as bibigo Mandu and Hetbahn. The ‘control (製通 · manufacturer and distributor)’ war to hold the price decision is spreading throughout the industry.
According to the distribution industry on the 30th, Coupang recently stopped ordering large products from CJ CheilJedang, such as bibigo dumplings, kimchi, and cooked rice. CJ CheilJedang products are still sold in Coupang, but they have suspended additional orders, so sales will end when stocks run out.
CJ CheilJedang claims that “Coupang unilaterally stopped ordering products when there was a difference of opinion in the process of negotiating next year’s product margin rate.” Coupang refused, saying, “The reason why we stopped ordering products was not because of margin negotiation issues, but because of CJ CheilJedang’s failure to fulfill the contract.”
Since the beginning of this year, CJ CheilJedang has been raising the prices of major products such as Hetbahn one by one due to the sudden increase in raw material prices. Coupang explained that CJ CheilJedang supplied products at a level that was much lower than the contracted volume before the price increase, and then supplied products in large quantities after the price increase.
According to the industry, it is known that CJ CheilJedang’s fulfillment rate is only in the 50-60% range. It means that if you promised to supply 100 products, you only supplied 50 to 60 products. The average distribution rate of large food companies is around 90%.
Both sides claim that the other side is “playing power”, but the industry sees this situation as a war of nerves to hold the right to decide the price. Coupang, which has a ‘lowest price in the industry’ policy, asks manufacturers to supply products at a lower price than competing distributors. On the other hand, manufacturers are in a position where they are constantly saying, “Distributors are deprived of the right to set prices, and they can’t be dragged around.”
Coupang fought with LG Household & Health Care over a similar issue in the past. In 2019, LG Household & Health Care filed a complaint with the Fair Trade Commission against Coupang for breaching the Fair Trade Act and the Large Scale Distribution Business Act. LG Household & Health Care argued that Coupang demanded that the sale price be unreasonably reduced.
After more than two years of investigation, the Fair Trade Commission sided with LG Household & Health Care. Coupang is in the process of filing a lawsuit against the penalty imposed by the Fair Trade Commission. However, the industry believes that the war between Coupang and LG Household & Health Care is almost over with Coupang’s victory. This is because LG Household & Health Care, which announced the end of the transaction with Coupang, has been continuously sending requests to Coupang recently.
The war between distributors and manufacturers is also happening in the fashion and luxury goods industries. Recently, Hermes, Chanel, Nike, etc. included a ‘no resale’ clause in their terms and conditions. This is a special measure taken as the resale market has grown rapidly recently and the price decision held by the manufacturer has been transferred to the resale platform.
Park Reporter Jong-kwan [email protected]