Retailers push back on concessions tied to early-morning delivery reform

Retailers say a package of concessions tied to plans to let large discount chains make early-morning deliveries would be unworkable in practice.

The Ministry of SMEs and Startups recently sent major retailers a seven-point shared-growth package reflecting proposals from groups representing small merchants and asked them to review it, industry sources said Monday. The measures aim to provide safeguards for small merchants as the government moves to allow large retailers to offer early morning delivery. 

“Allowing early-morning delivery will require measures that demonstrate large retailers’ commitment to shared growth,” the ministry told the retailers.

The ministry proposed a 100 billion won ($71 million) shared-growth fund for small merchants and a ban between midnight and 10 a.m. on large discount stores selling individual agricultural, livestock and seafood items priced at 10,000 won or less.

It also proposed helping small merchants buy goods from large discount stores and corporate supermarket chains at wholesale prices. The measures are detailed in materials submitted to People Power Party lawmaker Kim Sung-won, chair of the National Assembly’s Trade, Industry, Resources, SMEs and Startups Committee.

Lawmakers first introduced restrictions on large discount stores in 2012 and tightened them in 2013 after bipartisan agreement. The current framework allows local governments to restrict large discount stores from operating between midnight and 10 a.m. and require two closure days each month. As retail shifted online, critics argued that the rules put brick-and-mortar chains at a disadvantage against e-commerce companies and limited consumer choice.

The government and ruling Democratic Party are now seeking to amend the Distribution Industry Development Act so large discount stores can fulfill online orders during restricted hours while keeping limits on in-store operations. Small-business groups objected, and the ministry responded by circulating their proposals to retailers.

Retailers have most strongly objected to the proposed 10,000 won threshold. Even if online sales were allowed during hours when stores must remain closed, large retailers could not sell any individual agricultural, livestock or seafood item priced at or below that level.

For example, because the threshold would apply to each item rather than the total purchase, a consumer would be unable to order a shopping basket containing onions priced at 4,000 won and eggs at 7,000 won during those hours, even though the total cost is more than 10,000 won.

“They are effectively telling us to sell onions only in bulk packages costing more than 10,000 won, even though smaller households have made small-quantity purchases the norm,” said a retail industry source who requested anonymity.

“Neighborhood supermarkets and traditional markets are not open in the middle of the night either, so the proposal does not fit the purpose of easing the rules.”

Retailers also object to the wholesale price provision. Traditional market vendors and other small merchants would be able to buy goods from large discount stores and corporate supermarket chains, known as SSMs, at wholesale prices. Retailers say that would force them to resell goods at prices their buyers negotiated with suppliers, effectively turning them into distribution centers for smaller competitors.

Retailers also question the proposed fund. As part of the proposals, large discount chains and online platforms would contribute about 0.1 percent of sales. These contributions would generate at least 10 billion won a year for a minimum of 10 years to finance programs for small merchants.

E-commerce platforms such as Coupang and Kurly already operate around the clock. Allowing large discount stores into early-morning delivery would add new competitors without giving those platforms a corresponding benefit: Industry sources say the platforms would thus have little incentive to contribute to a fund tied to the change. Large discount chains, meanwhile, would have to weigh whether the additional sales from early-morning delivery would exceed what they have to pay to participate in the program.

The ministry also proposed voluntarily limiting new SSM outlets within 300 meters (984 feet) of traditional markets and having large retailers and small merchants jointly develop private-label products. Other ideas include expanding the issuance of Onnuri gift certificates, a government-issued voucher that can be used at traditional markets and small businesses, to boost traditional market sales and designating Oct. 22 as a statutory “Traditional Market Merchants’ Day,” in an attempt to foster a sense of pride among small merchants.

“We will help narrow the differences between the two sides and create a forum for talks so that small merchants are not harmed and an amicable agreement can be reached,” a ministry official said.

“An excessive shared-growth package divorced from how consumers actually shop risks weakening both its ability to protect small merchants and the purpose of easing rules on large discount stores,” Kim said. “As discussions continue, we need to find a realistic compromise that retailers, small merchants and consumers can all accept.”

BY CHOI HYUN-JU, KANG BO-HYUN [cho.yongjun1@joongang.co.kr]