Recently, chaebol business groups have been slammed for encroaching upon business areas considered more suitable for small-business people, such as bakeries, pizza shops and restaurants. One more item needs to be added to the list ― tobacco retail.
Lotte Group, the nation’s fifth largest chaebol with presence in diverse business fields including distribution, is under fire for using illegal means to earn profits from tobacco sales.
Under the law, only shop operators who directly sell cigarettes to consumers can trade in tobacco. But this is not the case for about 20 percent of the more than 4,400 7-Eleven convenience stores operated by Korea Eleven, a Lotte Group subsidiary.
According to a report released by a lawmaker of the opposition Democratic United Party, some 900 7-Eleven shops have won approval to sell tobacco not in the names of the shop operators but in the name of Korea Eleven or under the names of the group’s former or incumbent chairmen.
Korea Eleven’s practice is aimed at retaining tobacco retailer status when the franchises change hands. Currently, if a franchisee closes up shop, his designation as a tobacco retailer is canceled. It takes time to regain the lost designation as local governments designate retailers through a lottery.
Winning a designation in the name of Korea Eleven ensures that a franchised shop can sell tobacco even when the people running the shop have changed. But this practice runs afoul of the regulation that only designates people who directly sell cigarettes as tobacco retailers.
According to reports, Korea Eleven is currently the only convenience store franchiser to use the illegal practice.
For convenience stores, tobacco is an important item as it alone accounts for about 40 percent of their sales revenues on average. Last year, Korea Eleven’s total sales turnover was about 1.7 trillion won ($1.5 billion), of which tobacco sales accounted for over 640 billion won, or about 38 percent.
Selling tobacco is also profitable, with the profit margin for the retailer set at 10 percent.
For these reasons, neighborhood mom-and-pop stores are keen to be designated as tobacco retailers. For low-income people who are planning to start up a new business, a convenience store that sells cigarettes is an object of envy.
Selling tobacco is a business suitable for mom-and-pop stores. But it is dominated by convenience store chains operated by chaebol groups. Of course, it is not illegal for large groups to sell tobacco. Yet it would be more desirable to leave this business to neighborhood merchants. Chaebol groups need to behave wisely to avoid becoming a target of reform.
