Woowa Brothers apologizes over 'new fee system' fiasco
Woowa Brothers Founder Kim Bong-jin, right, and Baedal Minjok CEO Kim Beom-joon speak to staff at the company's headquarters in Songpa-gu, southeastern Seoul, on Jan. 17. / Courtesy of Woowa Brothers
By Kim Jae-heun
After facing heavy criticism over its highly controversial decision to introduce a new fee system, Woowa Brothers, the operator of the country's top food delivery firm Baedal Minjok (Baemin) issued a statement apologizing over its controversial decision.
The public apology came six days after Baemin decided to change its advertising rates. Also, its hurriedly released statement came ahead of next week's general election.
“I fully offer my sincere apology for adopting the new fee system. We were facing criticism over the introduction of the new system as the coronavirus spreads across the country with restaurant owners facing economic difficulties,” Woowa Brothers CEO Kim Beom-joon said in the statement released Monday afternoon.
“My initial intention was to decrease the evil influence of large restaurants dominating the ad exposure. The fee system will be fine-tuned and improved right away and we will provide protective measures to those who will face the burden of ad costs,” the chief executive said in the statement.
He went to on say that he didn't pay much attention over the increased burden to those affected under the new system. “I have to admit that we weighed in on embracing the effects of the new fee system.”
The statement added Woowa Brothers will refund half the amount already paid by restaurant owners for the use of its service in April.
Gyeonggi Province Governor Lee Jae-myung directly hit the operator on Twitter account by saying the introduction of the new system was against fair competition. Governor Lee simply condemned the new system as a “monopolistic tyranny,” saying he will personally lead the way to establish a public online delivery service application to compete with Baemin.
Starting last week, Baemin introduced the new ad system, allegedly lowering the commission fee by 1 percentage point to 5.8 percent per order made from 6.8 percent. The country's biggest food delivery player said 52.8 percent of small traders would benefit under the new system while restricting large restaurants from monopolizing ad space on the mobile platform.
But the Korea Federation of Micro Enterprise (KFME) took issue by claiming that the operator was aiming to playing tricks to “hide its original intention” to increase the commission fees and urged the country's top antitrust regulator, the Fair Trade Commission (FTC), to investigate this case while re-evaluating Delivery Hero's suggested acquisition deal with Woowa Brothers.
The FTC was reviewing the possibility of granting a “conditional approval” to the suggested acquisition deal. A key condition is that the merged unit, if the approval comes, presents specific “follow-up” measures to guarantee innovative activities.
The key rationale is that the acquisition proposal is raising concerns over a delivery monopoly. According to the Korea Franchise Association, Baemin has a 55.7 percent market share, followed by Yogiyo with 33.5 percent and Baedaltong with 10.8 percent. The latter two are subsidiaries of Delivery Hero.
Woowa Brothers is asked to come up with the specifics on how its acquisition would help the related business segment create additional ecosystems utilizing its de facto monopoly position in the market, according to sources who are knowledgeable with the issue. The deal would also help the merged unit use big data based on consumer behavior.
President Moon Jae-in and his economic team has been moving forward with plans to help local small- and medium-sized enterprises (SMEs) monetize their “untouched business ideas,” while properly protecting the “best interests of other business areas” that will be affected.
“If the system was made in consideration of the market ecosystem after Delivery Hero acquired Woowa Brothers, this will be taken into account,” an FTC official said.
According to the KFME, small restaurants show profits averaging 14.5 percent and it is estimated that they have a turnover of 30 million won every month ― net profit calculates to 4.35 million won. Here, if shopkeepers paid 260,000 won in ad fees before, they now they have to spend 1.74 million won, which is a 670 percent increase.
“The amount is equal to labor costs or restaurant rental costs and this comes as a huge burden for small traders. There can be a difference between cases but what is important is that Baemin's new fee system has inflated the commission fee to an unprecedented level,” a KFME official said.