[Reporter’s Notebook] The Law That Is Killing Neighborhood Businesses

Distribution Industry Development Act Contains Regulations on Large Discount Stores and SSMs
Over a Decade Later, the Law Fails to Reflect Current Realities
47% of SSM Stores Are Franchised by Small Business Owners, Yet Face the Same Regulations

The Distribution Industry Development Act (Distribution Act), which is set to expire at the end of this month, is on track for a four-year extension. The amendment bill to extend the sunset provision of the Distribution Act, which contains business regulations on large supermarkets and super-supermarkets (SSMs), passed the National Assembly's standing committee in September and is currently pending in the Legislation and Judiciary Committee. If it passes the National Assembly's plenary session, business regulations on large supermarkets and SSMs will remain in effect until 2029.

Large supermarkets and SSMs, which grew rapidly in the early 2000s, were identified as the main culprits behind the decline of traditional markets. At the time, lawmakers pushed to revise the Distribution Act to include regulations such as late-night business restrictions and mandatory closures on two public holidays per month for large supermarkets and SSMs, aiming to protect small business owners and local commercial districts from the dominance of large corporations. These regulations have been in effect since 2013, with the intention of revitalizing traditional markets and local businesses by placing restrictions on large supermarkets and SSMs.

More than a decade later, the situation has changed significantly, driven by a shift in the distribution paradigm toward online channels. In the first half of this year, online market sales grew by 10% compared to the previous year, while offline sales declined by 0.1%. The competitive landscape in the distribution market has shifted from "large corporations (large supermarkets and SSMs) vs. small business owners (traditional markets and local supermarkets)" to "online vs. offline."

During this time, local supermarkets have converted to SSM franchises in order to survive competition with online channels. When the Distribution Act was first amended, most SSMs were directly operated by large corporations, but as of last year, about half (47%) of SSMs are now franchises run by small business owners.

However, the Distribution Act remains unchanged and fails to reflect these new realities. The current law applies the same mandatory closure and business hour regulations to SSM franchises operated by small business owners. This creates a contradiction where a law intended to protect small business owners ends up regulating them instead. As a result, government-issued consumer coupons for economic recovery can be used at convenience store franchises but not at SSM franchises. Despite both being franchises, convenience stores are protected under the Franchise Business Act, while SSMs are regulated by the Distribution Act, which is unfair.

Contrary to the common belief that SSMs hinder the growth of traditional markets, they actually help revitalize local offline commercial districts. According to a recent analysis of credit card big data presented by Professor Cho Chunhan of Kyonggi University at a National Assembly seminar, after an SSM opens, sales at large supermarkets within a one-kilometer radius decrease, but sales at restaurants and convenience stores increase. The influx of consumers shopping at SSMs creates a spillover effect that benefits local businesses.

If outdated standards from over a decade ago are maintained, it will only further shrink local commercial districts already struggling with sluggish domestic demand and the onslaught of online markets. The National Assembly must carefully consider how this law will impact the lives of small business owners before deciding whether to amend the Distribution Act.