Resumption of Direct Transactions After Delivery Price Conflict
CJ CheilJedang Faces Domestic Food Business Contraction
Coupang Faces Fair Trade Commission Sanctions and Membership Fee Hike Concerns
Analysis of Mutual Agreement on Need for Collaboration
CJ CheilJedang is resuming direct transactions of its products with Coupang. This comes about 1 year and 8 months after suspending product supply to the channel due to conflicts over delivery prices. The distribution industry views this cooperation with Coupang, known as the 'e-commerce giant,' as inevitable for CJ CheilJedang, the top player in the food industry, to overcome the prolonged sluggish domestic market.
Recently, Coupang faced a fine of around 100 billion KRW imposed by the Fair Trade Commission for manipulating search ranking algorithms to increase sales of its private brand (PB) products, resulting in operating losses. Additionally, with signs of member churn due to paid membership fee hikes, the growing sense of crisis has led to analyses that the decision to re-engage influential manufacturers aims to maintain competitiveness in the e-commerce market.
On the morning of the 14th, CJ CheilJedang and Coupang simultaneously released press statements announcing the sequential sale of CJ CheilJedang's popular products such as Hetbahn, Bibigo, and Spam through Rocket Delivery. Starting today, sales of frozen, refrigerated, and fresh foods including Bibigo dumplings, Bibigo kimchi, and Gourmet pizza will resume on Coupang. Following this, processed and instant foods like Maxbong sausages and Matbam chestnuts, as well as seasonings such as Haechandle gochujang and doenjang, and cooking essentials like Baeksul cooking oil, flour, and sugar will also be available on Coupang.
From the 23rd, CJ CheilJedang's Chuseok gift sets will also be purchasable on Coupang. By the end of next month, all major brand products of CJ CheilJedang will be available through Coupang's Rocket Delivery. Coupang Wow membership members can receive key products via Rocket Fresh and Rocket Wow with dawn or same-day delivery.
This marks 1 year and 8 months since the two companies last engaged in direct transactions. Previously, CJ CheilJedang and Coupang halted orders from December 2022 due to unresolved differences over delivery prices.
Within the distribution industry, it is seen that Coupang, facing an onslaught from C-commerce (Chinese e-commerce), extended a hand of reconciliation first to CJ CheilJedang. While CJ CheilJedang ceased transactions with Coupang, it held discount events on other e-commerce platforms such as Naver Shopping, 11st, and Gmarket, forming a so-called 'anti-Coupang alliance.' Additionally, it entered 'K-Venue,' a Korean product specialty section on AliExpress, a C-commerce platform, offering major products at discounted prices. Ali, which uses ultra-low prices as its weapon, is considered Coupang's biggest threat.
Recently, the Fair Trade Commission imposed a final fine of 162.8 billion KRW on Coupang for manipulating the 'Coupang ranking order' search results to induce consumers to purchase PB products. Coupang, which recorded its first-ever annual operating profit since its founding last year, posted an operating loss of 25 million USD (about 34.1 billion KRW) in Q2 this year, turning to a deficit. This is the first quarterly operating loss for Coupang in eight quarters since it posted an operating profit in Q3 2022. Coupang's operating profit for the first half of this year was 15 million USD (about 20.5 billion KRW), a 94% decrease compared to 254.4 million USD (about 347 billion KRW) in the first half of last year.
Coupang explained that operating losses occurred due to the inclusion of a 42.4 billion KRW (about 31 million USD) operating loss from Farfetch, acquired earlier this year, and the Fair Trade Commission fine. Additionally, the monthly membership fee for Wow membership was raised by 58.1% from 4,990 KRW to 7,890 KRW starting this month, raising concerns about potential member churn.
CJ CheilJedang's situation is also challenging. While overseas sales are increasing with K-foods such as dumplings, tteokbokki, and kimchi, the domestic market is struggling due to the economic downturn. In Q2 this year, the food business division recorded an operating profit of 135.9 billion KRW, down 4.8% year-on-year due to domestic sales contraction, and sales decreased by 1% to 2.7051 trillion KRW.
Considering these realities, it is speculated that neither company could easily exclude the other, given their significant influence in food manufacturing and distribution. However, CJ CheilJedang and Coupang stated, "Even after the suspension of transactions, communication and negotiations from a business perspective have continued," and "Resuming collaboration is aimed at enhancing consumer convenience."
Professor Lee Young-ae of Incheon National University's Department of Consumer Studies said, "Food manufacturers and the top e-commerce company engaged in a power struggle over delivery prices to gain negotiation advantages, but both sides are inseparable from a business standpoint. CJ CheilJedang lacks a suitable platform to replace Coupang in terms of consumer satisfaction and influence, and Coupang has become more flexible due to the Fair Trade Commission sanctions and other crises, creating grounds for resuming transactions."
As Coupang restarts transactions with CJ CheilJedang, attention is focused on whether it will also seek to improve relations with CJ Group affiliates such as CJ Olive Young and CJ Logistics, with whom it has had conflicts over beauty and parcel delivery businesses. Previously, Coupang also suspended direct transactions with LG Household & Health Care over delivery prices but resumed dealings in mid-January after 4 years and 9 months.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
