[Exclusive] "Closed Delivery Agency Business, Suddenly Hit with 50 Million Won Penalty"

Industry 4th Place 'Manna Planet' Contract with Branches Reveals
Millions in Penalties and Abuse Causing Small Business Damage
Participation in Public Delivery App Project... Recently Excluded from Fair Trade Commission Inspection
Practice of Lending Hundreds of Millions to Recruit New Branches Prevails

Asia Economy DB=Photo by Honam Moon munonoam@

"After operating a local delivery agency branch for about a year and then closing the business, they are demanding a penalty fee of 50 million KRW. I find it impossible to accept such an abnormal penalty fee system."

Small business owners who ventured into the delivery agency business are suffering huge losses one after another. They are appealing that it is due to the "power abuse by delivery agency platforms and excessive penalty fee systems." Recently, the Fair Trade Commission inspected contracts and ordered corrections, but only three major companies were included, leaving blind spots. The delivery agency company ‘Manna Planet’ operates by sharing orders through an alliance of seven delivery agency platforms.

According to Asia Economy’s confirmation on the 2nd, this company imposes penalty fees of tens of millions of KRW when local delivery agencies terminate contracts, and until last year, it also failed to pay 1.9 billion KRW in taxes. In the delivery agency industry, the practice of giving large loans to recruit new branches and collecting high-interest rates is also rampant. As the food delivery industry has grown rapidly in a short period and proper laws and systems are not yet established, companies are still exploiting this.

Penalty fees of tens of millions to branches... Fair Trade Commission says "We didn’t know"

Manna Planet shares programs operated by seven delivery agency platforms including Jetcall, Gongyuda, and Roadpilot. It is characterized by high efficiency due to many delivery drivers stationed in each region handling food orders. In December last year, the total number of orders reportedly reached 14 million. Considering that LogiAll (service name Ssangdaero), competing for first or second place in the industry, had 16.7 million orders during the same period, the market share is quite high. Manna Planet also participates in public delivery app projects operated by local governments such as Seoul, Sejong, and Yeosu.

Despite the company’s status, its operating methods are known to be unreasonable. A branch manager who introduced himself as having worked in delivery agency business under contract with Manna Planet until last year said, "The head office demanded a penalty fee exceeding 50 million KRW for failing to meet the contract period." The contract period is usually 2 to 3 years, and if not fulfilled, a huge penalty fee is imposed. The contract obtained exclusively by this paper contained several suspicious unfair contract clauses. It prohibited the use of other delivery agency platforms simultaneously and allowed contract termination if delivery performance dropped by more than 30% compared to the average of the previous three months.

The penalty fee items payable to the head office include ① franchise fee of 10 million KRW ② platform fees with discounts applied ③ costs for delivery driver vests and card terminals ④ estimated damages for the remaining contract period. Especially for item ②, the contract states that a platform usage fee of 100 KRW per order is paid, with a 50 KRW discount, and this discount amount is included in the penalty fee. In other words, a local delivery agency receiving 1,000 orders per day would have 50,000 KRW per day, 1.5 million KRW per month, and 15 million KRW over 10 months included in the penalty fee. It also specifies that the penalty fee must be paid within 14 days of the head office’s claim.

Recently, the Fair Trade Commission inspected contracts between local delivery agencies and LogiAll, Barogo, and Mesh Korea (Boorung), and ordered voluntary correction of unfair clauses, but regarding Manna Planet, they said "We heard about it for the first time" and had no knowledge of its existence. A Fair Trade Commission official only said, "Since the three major delivery agency platform operators agreed to voluntarily correct their contracts, it is highly likely that this company will also revise its contracts."

Lending hundreds of millions... Playing with 10-20% high-interest rates

There are also allegations of tax evasion. The cash flow in the delivery agency industry is structured so that restaurant owners (franchisees) deposit funds into virtual accounts of the delivery agency platform headquarters, from which delivery fees for drivers and platform commissions are settled. Delivery drivers also withdraw their earnings through these virtual accounts.

Manna Planet promised to handle VAT tax processing included in delivery fees, but some branches claim, "Tax processing is not being done properly." According to confirmation with Manna Planet, as of the end of last year, unpaid taxes amounted to 1.9 billion KRW. The unpaid amount recorded as ‘Other Payables’ in the 2019 financial statements was 3.7 billion KRW but increased to 6 billion KRW a year later and was moved to the ‘Unpaid Corporate Tax’ category. A tax expert explained, "The company was operating at a loss last year and does not need to pay corporate tax," adding, "The 6 billion KRW of unpaid corporate tax appears to be unpaid VAT reclassified as unpaid corporate tax."

It is reported that about ten branches recently terminated contracts and left Manna Planet due to this issue.

Industry insiders suspect that the headquarters used money that should have been paid as taxes for the ‘loans’ to recruit new branches. Loans are sums ranging from tens of millions to hundreds of millions of KRW lent by delivery agency platform companies to recruit new branches, and this has become an industry practice. Branches that receive loans cannot move to other platforms if they fail to repay the money. A delivery agency industry insider said, "Loans must be repaid over 2 to 3 years, with high interest rates of about 10-20% per annum."

The problem is that there is no way to stop such business practices. The government plans to newly implement the ‘Living Logistics Service Industry Development Act (Saengmulbeop)’ from next month. It includes certifying and supporting qualified delivery agency operators as excellent businesses by introducing standard contracts. However, the use of standard contracts is only recommended, not mandatory. Most companies are left to their own discretion, so enforcement is weak. An industry insider pointed out, "A system is needed to protect small local delivery agencies from headquarters’ problems such as tax evasion and embezzlement."