{"id":2207053,"date":"2024-11-07T11:29:59","date_gmt":"2024-11-07T02:29:59","guid":{"rendered":"https:\/\/koreapro.org\/?p=2207053"},"modified":"2024-11-07T11:29:59","modified_gmt":"2024-11-07T02:29:59","slug":"south-koreas-food-delivery-giants-face-antitrust-scrutiny-amid-rising-fees","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2024\/11\/south-koreas-food-delivery-giants-face-antitrust-scrutiny-amid-rising-fees\/","title":{"rendered":"South Korea\u2019s food delivery giants face antitrust scrutiny amid rising fees"},"content":{"rendered":"

The COVID-19 pandemic sparked explosive growth in South Korea\u2019s food delivery industry, with platforms like Baedal Minjok (Baemin), Coupang Eats, and Yogiyo quickly becoming essential services for consumers and restaurants alike.<\/span><\/p>\n

Together, these three platforms control <\/span>96%<\/span><\/a> of South Korea\u2019s food delivery market.<\/span><\/p>\n

But as the pandemic waned, these platforms faced new challenges \u2014 most notably, rising costs and fierce competition that are squeezing restaurant owners and putting pressure on the market.<\/span><\/p>\n

In response to mounting complaints about monopolistic practices and increasing commission fees, South Korea\u2019s Fair Trade Commission (FTC) <\/span>launched an investigation<\/span><\/a> into the three delivery giants in July. This investigation marks a critical moment in the industry\u2019s evolution, as questions about fair competition, consumer impact and regulatory intervention come to the forefront.<\/span><\/p>\n

RISING COMMISSION FEES<\/b><\/p>\n

The catalyst for the FTC\u2019s investigation was Baemin\u2019s controversial decision to <\/span>increase its commission fees<\/span><\/a> for restaurant owners from 6.8% to 9.8%. This move sparked outrage from restaurant owners, industry unions and civil society groups, who argue that the additional costs are unsustainable for small businesses already struggling with thin margins.<\/span><\/p>\n

Critics of the fee hike, including the Korea Franchisee Union and the Rider Union, argue that such increases disproportionately affect small and medium-sized enterprises (SMEs).<\/span><\/p>\n

\u201cInstead of sharing responsibility, these platforms push business owners to their limits,\u201d Lee Eun-hee, a professor of consumer science at Inha University, told <\/span>Korea Pro<\/span><\/i>. \u201cRestaurants are now handling higher prices for delivery orders than for take-out than they did before.\u201d<\/span><\/p>\n

Industry experts and business owners alike suspect that the fee hikes may be driven by external financial pressures on Baemin\u2019s parent company, Woowa Brothers Corp. Woowa paid out over $292 million (<\/span>400 billion won<\/span><\/a>) in dividends to its German parent company, Delivery Hero, in 2023. This was the largest payout since Delivery Hero acquired Baemin in 2019.<\/span><\/p>\n

Some view the increased fees as a way to offset these costs, exacerbating tensions between platforms and restaurants.<\/span><\/p>\n

\"\"

An illustration of a scooter | Image: Korea Pro<\/em><\/p><\/div>\n

ESCALATING COMPETITION<\/b><\/p>\n

The rivalry between Baemin, Coupang Eats and Yogiyo has intensified in recent years, particularly as market growth has slowed following the COVID-19 boom. In 2023, <\/span>Statistics Korea<\/span><\/a> reported the first decline in sales for the food delivery industry since the pandemic\u2019s onset, driven by decreased demand and growing consumer price sensitivity.<\/span><\/p>\n

To counter shrinking profits, Coupang Eats introduced a <\/span>subscriber-based free delivery service<\/span><\/a> in March 2023. Baemin <\/span>quickly followed<\/span><\/a> with its own free delivery service and Yogiyo joined the trend soon after.<\/span><\/p>\n

While these moves may attract more users, they have added new financial strains to the platforms, which are now under pressure to develop alternative revenue streams beyond increasing fees for restaurant owners.<\/span><\/p>\n

\u201cIt will be difficult for the market to grow exponentially like during the COVID-19 pandemic. It won\u2019t be easy for delivery platforms to keep increasing delivery prices. They will need to develop a different profit model instead of squeezing it out of restaurant owners,\u201d Lee said.<\/span><\/p>\n

Despite attempts to innovate, the platforms\u2019 current business model appears increasingly unsustainable. As commission fees rise, restaurant owners face pressure to increase their own prices to maintain profitability, further threatening the delicate balance of costs in a highly competitive industry.<\/span><\/p>\n

REGULATORY PUSH<\/b><\/p>\n

The push for stronger regulation of food delivery platforms has gained momentum as a result of these mounting tensions. Lawmakers have revived efforts to pass the <\/span>Online Platform Monopoly Regulation Act<\/span><\/a>, which seeks to prevent dominant online platforms from exploiting their market power.<\/span><\/p>\n

Modeled on the European Union\u2019s <\/span>Digital Markets Act<\/span><\/a> (DMA), the bill aims to protect SMEs and consumers from the unchecked power of platform \u201cgatekeepers.\u201d<\/span><\/p>\n

On Aug. 20, Representative Oh Se-hee <\/span>reintroduced<\/span><\/a> the bill in the National Assembly, marking the Democratic Party\u2019s eighth attempt to pass such legislation since 2020.<\/span><\/p>\n

Oh <\/span>argued<\/span><\/a> that the government should establish laws and systems that can create a fair online platform market. She highlighted the plight of small business owners, many of whom are struggling under what she called \u201cthe tyranny of large platform operators such as Coupang and Baemin.\u201d<\/span><\/p>\n

However, the bill faces significant opposition. Critics argue that it could deter foreign investment and stifle innovation in South Korea\u2019s burgeoning tech industry.<\/span><\/p>\n

Jeon Seong-min, a professor of business administration at Gachon University, voiced concerns that the bill would unnecessarily duplicate existing regulations under the Monopoly Regulation and Fair Trade Act, creating burdensome red tape for online platforms.<\/span><\/p>\n

\u201cEurope does not have big, online platforms like South Korea does. Applying the DMA here makes no sense,\u201d Jeon told <\/span>Korea Pro<\/span><\/i>, noting that such regulations could lead to higher costs for consumers and restaurant owners alike.<\/span><\/p>\n

\"\"

An illustration depicting corporate control over smaller businesses | Image: Korea Pro<\/em><\/p><\/div>\n

BALANCING REGULATION AND MARKET GROWTH<\/b><\/p>\n

Proponents of the bill argue that tighter regulation is necessary to curb unfair practices and protect SMEs from platform monopolies, while opponents warn of unintended consequences.\u00a0<\/span><\/p>\n

The American Chamber of Commerce in Korea has <\/span>expressed concerns<\/span><\/a> that the bill could <\/span>disproportionately affect<\/span><\/a> U.S. tech giants like Google and Meta, which are key players in South Korea\u2019s digital economy. At the same time, Chinese platforms with smaller market shares could potentially escape the same level of scrutiny.<\/span><\/p>\n

The proposed law targets platforms with market capitalizations exceeding $7.3 billion (10 trillion won), annual revenues above $2.2 billion (3 trillion won), and over 10 million monthly users \u2014 criteria that would apply to <\/span>domestic giants<\/span><\/a> like Naver, Baemin and Coupang, as well as foreign companies.<\/span><\/p>\n

If passed, the law could reshape the competitive landscape of South Korea\u2019s digital economy.<\/span><\/p>\n

GOVERNMENT RESPONSE<\/b><\/p>\n

In an attempt to preempt legal action, the government has launched a <\/span>public-private consultative group<\/span><\/a> to facilitate dialogue between platform operators and small business owners. The council, which includes representatives from the delivery platforms, merchant associations and civil society groups, was created to mediate disputes over commission fees and other business practices.<\/span><\/p>\n

However, after seven biweekly meetings, the council has yet to reach a consensus, with delivery platforms resisting efforts to regulate their pricing strategies.<\/span><\/p>\n

This deadlock has prompted calls for more aggressive government intervention. On Oct. 14, the government <\/span>announced<\/span><\/a> that it would step in with its own arbitration plan if the consultative group fails to produce meaningful results.<\/span><\/p>\n

\u201cOur citizens won\u2019t remain impassive. We will take on a more aggressive approach,\u201d warned lawmaker Oh, indicating that legislative action may be inevitable if the industry fails to self-regulate.<\/span><\/p>\n

IMPLICATIONS FOR THE FUTURE<\/b><\/p>\n

The outcome of the ongoing investigations and legislative efforts will have far-reaching implications for South Korea\u2019s food delivery industry. If the FTC rules against the delivery platforms, they may face hefty fines, further regulatory scrutiny and possibly even forced changes to their business models.<\/span><\/p>\n

On the other hand, if the Online Platform Monopoly Regulation Act passes, it could usher in a new era of oversight for South Korea\u2019s tech giants, potentially reshaping the country\u2019s digital landscape.<\/span><\/p>\n

For now, small business owners and consumers continue to bear the brunt of rising costs in the food delivery sector. As the debate over fair regulation intensifies, one thing remains clear: the future of South Korea\u2019s food delivery platforms will be determined not only by market forces but also by the growing influence of government intervention.<\/span><\/p>\n

Edited by John Lee<\/span><\/i><\/p>\n

Business & Economy<\/span><\/a>Culture & Society<\/span><\/a>Domestic Politics<\/span><\/a><\/div>","protected":false},"excerpt":{"rendered":"

The COVID-19 pandemic sparked explosive growth in South Korea\u2019s food delivery industry, with platforms like Baedal Minjok (Baemin), Coupang Eats, and Yogiyo quickly becoming essential services for consumers and restaurants alike. Together, these three platforms control 96% of South Korea\u2019s food delivery market. But as the pandemic waned, these platforms faced new challenges \u2014 most […]<\/p>\n","protected":false},"author":10407,"featured_media":2207054,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[24,25,27],"yoast_head":"\nSouth Korea\u2019s food delivery giants face antitrust scrutiny amid rising fees - KOREA PRO<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/koreapro.org\/2024\/11\/south-koreas-food-delivery-giants-face-antitrust-scrutiny-amid-rising-fees\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"South Korea\u2019s food delivery giants face antitrust scrutiny amid rising fees - KOREA PRO\" \/>\n<meta property=\"og:description\" content=\"The COVID-19 pandemic sparked explosive growth in South Korea\u2019s food delivery industry, with platforms like Baedal Minjok (Baemin), Coupang Eats, and Yogiyo quickly becoming essential services for consumers and restaurants alike. 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