Baemin Shifts Self-Employed App Fees from Flat Rate to Percentage
Sogongyeon "Fee Surge"... Baemin "Flat-Rate Product Hoarding Decreases"
Political Sphere Proposes 'Baemin Special Act' as Election Pledge
Gunsan's 'Baedal-ui Myeongsu' Gains Popularity with Local Voucher Discounts
Gyeonggi Governor Lee Jae-myung and Local Governments Show Interest in Public App Launch
Fair Trade Commission: Focus on Competition Restriction Over Political or Public Opinion
If Baemin Is Judged to Excessively Violate Competition Restrictions under Fair Trade Law
Measures to Prevent Competition Restriction Harms
[Asia Economy Reporter Moon Chae-seok] Baedal Minjok, the number one delivery application in South Korea, is facing criticism and even being labeled as the "Nation of Betrayal" after changing its app commission fee system for self-employed business owners from a fixed rate to a percentage-based system. The political sphere has included the enactment of a special law in the April 15 general election pledges, and local governments are preparing to counter Baemin with public delivery apps. As the controversy expands, there are expectations that it will also affect the merger between Woowa Brothers, the operator of Baemin, and Delivery Hero, the operator of Yogiyo and Baedaltong.
According to the food service industry on the 6th, Baemin changed its commission policy from a fixed rate of 88,000 KRW per exposure (including VAT) to a percentage rate of 6.4% of sales (including VAT), raising concerns about the increased commission burden. The industry expects that the commission fees to be paid immediately will increase due to the rise in delivery customers amid the spread of COVID-19. According to the "February Online Shopping Trends" released by Statistics Korea on the 3rd, the transaction amounts for food services and food and beverage products increased by 82.2% and 71%, respectively, compared to the same month last year. Under the fixed rate system, businesses could purchase an average of three fixed-rate products priced at 88,000 KRW each, and costs were fixed, but under the percentage system, commissions can sharply increase depending on sales. In response, the Korea Federation of Micro Enterprise (KFME) stated on the 3rd that "the percentage system, where commissions increase exponentially according to sales scale, will be a heavy burden for small business owners." They estimated that only stores with monthly sales of 1.55 million KRW (based on 30 business days, an average daily sales of 51,667 KRW) would pay less commission than before.
On the other hand, Baemin claims that there will be no unfair commission increases and that it will maintain a competitive system with 'Yogiyo' and 'Baedaltong.' Rather, they believe the new policy will reduce the possibility of unfair trade where large businesses hoard fixed-rate products. Baemin explained, "The 1.55 million KRW calculated by KFME is based on businesses using one 'flag' (advertising fee). The average number of flags used by Baemin-registered businesses is three, corresponding to monthly sales of 4.65 million KRW. Therefore, considering only sales through the app excluding in-store sales, businesses with monthly sales below 4.65 million KRW (average daily sales of 155,000 KRW) will see a reduction in cost burden going forward."
In the political arena, the campaign against Baemin is spreading, including the inclusion of a "Baemin Special Law" in election pledges. Gyeonggi Province Governor Lee Jae-myung also proposed a plan to develop a public delivery app. This is similar to the public app "Baedal-ui Myeongsu," launched by Gunsan City, Jeonbuk Province, on the 13th of last month, the first of its kind nationwide. Unlike Baemin, Baedal-ui Myeongsu does not charge business owners per-use fees, membership fees, or advertising fees, earning praise from self-employed business owners. It even supports promotion costs and equipment purchase costs when selecting excellent stores. Consumers also welcome it because they receive benefits such as an 8% discount on order amounts when paying with the local gift certificate "Gunsan Sarang Gift Certificate." Thanks to this, Gunsan City earned nearly 150 million KRW, the break-even point (BEP), within three weeks. From the 13th of last month to the 2nd of this month, they processed orders worth about 127 million KRW, almost recovering the one-year operating budget of 150 million KRW.
The Fair Trade Commission (FTC) plans to consider Baemin's commission changes in the corporate merger review between Woowa Brothers and Delivery Hero but will focus the investigation on whether the new policy excessively restricts competition. The FTC intends not to be overly influenced by demands for price increase investigations and critical public opinion from KFME and political circles. They will only examine whether there is a possibility of price increases due to intensified market monopolization after the merger, deterioration in service quality, reduction in consumer choice, or decreased corporate innovation efforts.
According to Article 7 of the Monopoly Regulation and Fair Trade Act (Fair Trade Act), "If the efficiency gains that are difficult to achieve by methods other than the relevant corporate merger outweigh the damage caused by competition restrictions, the restrictions on corporate mergers shall not apply." However, Article 16 of the same law states, "For companies involved in corporate mergers that violate Article 7 (including related parties in some cases) or violators, corrective measures such as ▲cessation of the act ▲disposal of stocks ▲resignation of executives ▲transfer of business ▲cancellation of debt guarantees ▲restrictions on business methods or business scope to prevent damage caused by competition restrictions due to corporate mergers may be ordered." This means that if the FTC judges that the benefits of the merger outweigh the harm caused by competition restrictions, it will allow it, but if the violation is deemed serious, corrective measures can be imposed.
An FTC official said, "We cannot confirm details about individual cases," but added, "Before concluding the corporate merger review, rather than being influenced by specific issues such as the launch of 'Baedal-ui Myeongsu' and commission controversies, we will focus on reducing competition restrictions and closely examine whether market monopolization, price increases, or service quality deterioration occur." The legal deadline for the FTC's corporate merger review of Woowa Brothers and Delivery Hero is the 28th of this month. The FTC stated that it will take sufficient time to thoroughly review materials without being bound by the legal deadline.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
