South Korea’s FTC Investigates Kakao For Supplier Practices Under Retail Business Law

Kakao Faces Regulatory Scrutiny Over Supplier Practices in South Korea: Consent Resolution Procedure Initiated by the Fair Trade Commission

On 20 January 2025, South Korea's Fair Trade Commission (FTC) initiated a consent resolution procedure in its investigation into Kakao for alleged violations of the Large-Scale Retail Business Act.

The investigation focuses on Kakao’s business practices within its "Kakao Gift" platform, particularly the company’s approach to supplier shipping arrangements and fee structures.

The FTC's inquiry revealed that Kakao required suppliers to adopt a free delivery model, embedding shipping costs into the product price. This approach increased the baseline price, leading to higher commission fees paid by suppliers to Kakao. The FTC alleges that this practice limited suppliers' autonomy and resulted in unfair financial burdens.

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Kakao responded by proposing a series of self-corrective measures aimed at improving market practices. These proposals include expanding delivery options, reducing supplier fees, offering marketing support, and implementing fair trade education and compliance programmes.

This case marks the first application of the consent resolution procedure in South Korea’s online shopping sector since its introduction in July 2022.

Key Findings of the Investigation

The FTC’s investigation identified several business practices that raised compliance concerns:

1. Mandatory Free Delivery Model: Suppliers on Kakao Gift were compelled to adopt a free delivery model where shipping costs were hidden within the product price. This limited suppliers' ability to choose alternative shipping options that might better suit their business models.
2. Increased Commission Fees: By inflating the product price to cover shipping, Kakao calculated its commission based on the total price, including embedded shipping costs. This led to higher commission payments for suppliers, impacting their profit margins.
3. Delayed Contract Documentation: The investigation also noted delays in providing formal contracts to suppliers, which created additional uncertainty in business transactions.
4. Unjustified Product Returns: Some suppliers reported instances where Kakao returned products without valid reasons, adding to the operational challenges faced by smaller businesses.

The FTC concluded that these practices could violate the Large-Scale Retail Business Act, which is designed to protect suppliers from unfair trade conditions imposed by dominant retailers.

Kakao’s Self-Corrective Measures

In response to the FTC’s concerns, Kakao proposed a range of corrective actions to address the issues identified. These include:

• Expanded Delivery Options: Suppliers will now have the freedom to choose between free delivery (with shipping costs included in the product price) and paid delivery (where shipping fees are separate). This change allows suppliers to select the most cost-effective option for their business.
• Fee Reductions: Kakao plans to lower various fees, including payment gateway fees and sales commissions. Additionally, suppliers will no longer be charged transaction fees on shipping costs.
• Marketing and Financial Support: The company has committed to providing KRW 9.2 billion (approximately USD 7 million) in financial support through reduced fees and marketing initiatives. This includes free advertising credits, tailored consulting services, and promotional campaigns to boost supplier sales.
• Fair Trade Compliance Programs: Kakao will introduce comprehensive training programs for its employees to promote fair trade practices. A new compliance programme will be implemented to prevent future violations and ensure adherence to regulatory standards.

The FTC welcomed these proposals, noting that they are designed to benefit suppliers without increasing consumer costs.

The commission highlighted that Kakao’s commitment to swift implementation reflects a constructive approach to resolving regulatory concerns.

Impact on the Online Shopping Market

This case is particularly noteworthy as it represents the first time the consent resolution procedure has been applied in South Korea’s online shopping sector.

Introduced in July 2022, this procedure allows companies under investigation to propose corrective measures, enabling faster resolution without a formal ruling on legal violations.

The FTC’s decision to initiate this procedure with Kakao aligns with proactive regulatory oversight in the e-commerce industry.

Kakao’s corrective measures are expected to set a new standard for supplier relations within South Korea’s online retail space. The emphasis on supplier autonomy, transparent fee structures, and fair contract terms could influence other major platforms to review their business practices, fostering a more equitable digital marketplace.