"There Was a Reason Ice Cream Is Expensive"... Fair Trade Commission Slaps 135 Billion Won Fine on Lotte, Binggrae, and Others for Collusion

[Asia Economy Sejong=Reporter Dongwoo Lee] The Fair Trade Commission announced on the 17th that it imposed corrective orders and fines totaling approximately 130 billion KRW on five domestic ice cream manufacturers and sellers, including Lotte and Binggrae, as well as three distribution companies, for colluding on ice cream sales prices and client division.

The Fair Trade Commission imposed fines totaling 135.045 billion KRW on five manufacturers?Lotte Holdings, Lotte Confectionery, Lotte Foods, Binggrae, Haitai Confectionery & Foods?and three distributors?Samjeong Logistics, Taejeong Distribution, Hanmi Distribution?for colluding on ice cream sales and delivery prices and dividing retail clients from February 15, 2016, to October 1, 2019. Among them, two companies, Binggrae and Lotte Foods, will be reported to the prosecution. The Fair Trade Commission’s policy is to strictly handle repeated collusion despite detection and sanctions in 2007.

Four manufacturers?Lotte Confectionery, Lotte Foods, Binggrae, Haitai Confectionery & Foods?colluded on prohibiting intrusion into competitors’ retail stores amid a continuous decline in product delivery prices in 2016, limiting the upper limit of support rates for retail and agency stores, and raising delivery and sales prices for distribution channels such as convenience stores, SSMs, and large supermarkets.

After agreeing to prohibit sales competition by converting retail stores they were dealing with into their own clients, they suppressed the increase in support rates for retail stores. As a result, the number of retail stores taken over by the four manufacturers from competitors sharply dropped from 719 in 2016 to 29 in 2019. This was due to reduced competition by restricting sales activities toward competitors’ retail clients through collusion. Separately, in the Busan area, the four manufacturers and three distributors based in Busan?Samjeong Logistics, Taejeong Distribution, Hanmi Distribution?also agreed to prohibit intrusion into competitors’ retail stores.

They also agreed in early 2017 to limit the upper support rate to 76% for retail stores (including ice cream discount stores) and 80% for agency stores. This collusion was directly aimed at preventing the decline of delivery prices for ice cream supplied to retail or agency stores. They also restricted delivery price increases and the number of promotional items for convenience stores. The four manufacturers agreed to raise their delivery prices by lowering the margin rate for convenience stores to below 45%. They also reduced the number of ice cream items subject to promotional events such as discounts and giveaways (2+1) conducted by convenience stores to 3?5 items.

They also colluded on specific sales prices by ice cream product type. Lotte Foods and Haitai Confectionery & Foods colluded to raise the sales prices of tube-type products such as Geobukal, Ppapiro (Lotte Foods), and Polaro? Tank Boy (Haitai Confectionery & Foods) from 800 KRW to 1,000 KRW, aligning prices within the same competitive product group. Regarding distribution channels, the four manufacturers agreed to raise sales prices for cone and sandwich types to 700 KRW, bar types to 400 KRW, tube types to 600 KRW, and home types to 3,500 KRW for large supermarkets and SSMs. Later, around August 2019, they agreed to uniformly raise sales prices of all types of ice cream products by up to 20% and implemented this.

These four manufacturers also agreed on the order of winning bids in four ice cream purchase tenders conducted by Hyundai Motor Company from 2017 to 2020. Accordingly, in three tenders from 2017 to 2019, three manufacturers won bids each time and supplied ice cream worth a total of 1.4 billion KRW.

The Fair Trade Commission stated that it detected and sanctioned collusion secretly carried out for nearly four years among businesses holding about 85% of the ice cream market share, correcting various forms of collusion that caused ice cream price increases. The Commission said, "Going forward, the Fair Trade Commission will strengthen monitoring of collusion that increases prices and burdens on households in food and daily necessities sectors and will strictly sanction violations without tolerance."