Alcohol kickback ban gets wholesale support

Despite public discontent and some confusion, a new rule forbidding kickbacks paid by alcohol manufacturers to wholesalers is receiving some important support. The wholesalers themselves are saying that the regulation is good for the market.

The Korea General Liquor Wholesalers Association (Kglwa) has said that the measure will promote free competition within a sector currently dominated by a few companies.

Existing regulations already ban the paying of illegal rebates to wholesalers, but punishments were not meted out to rule breakers. But under the new rule which will be taken into effect July, those making the offending payments will be punished.

“Giving discounted prices as kickbacks to certain wholesalers created a competitive landscape dominated by a handful of wholesalers,” said Oh Jeong-suk, the head of Kglwa. “It intensified monopoly and resulted in the near collapse of the industry.”

Under the current system, manufacturers or importers sell alcohol beverages to licensed wholesalers, who then sell them to retailers.

Despite the good intentions, the announcement made by the National Tax Service on May 31 triggered public backlash, with some people arguing that the fixing of costs to wholesalers purchasing different volumes of alcoholic beverages interferes in the operation of the free market. Many also fear that the regulations may result in higher end prices for the consumer.

“The government says it is revising the regulations to prevent unfair competition in the alcohol wholesale industry,” said a source from the industry. “But what should be defined as fair and unfair is vague.”

Offering the same price to a wholesaler who purchases large quantities and another wholesaler who buys much less may not be fair depending on perspective, the spokesperson added. The government argues that the regulation will have a limited impact on the consumer price.

The existing regulation bans alcohol manufacturers and importers from offering illegal rebates to wholesalers, but the wholesalers were not punished for receiving it. Under the revised regulations, which will kick off in July, wholesalers will be equally punished if they are found to have received kickback from manufacturers.

“The essence of the revision is to make manufacturers sell alcoholic drinks at the same price to every wholesaler in order to foster fair competition,” said a spokesperson from the National Tax Service. “Manufacturers are able to raise or lower the factory price, but they should offer the same price to every wholesaler instead of giving discounts to certain wholesalers in the name of incentives.”

In regard to the public concern for increased consumer price, the spokesperson explained that wholesalers will be free to offer different prices.

“Since wholesalers sell drinks at a price above the factory price, they are given the freedom to offer different prices to different retailers depending on the number of orders placed,” the spokesperson said.

Banning wholesalers from receiving rebates will not affect the consumer price because the rebate has been used by manufacturers to maintain favorable business relationships.

“The polarization among alcohol wholesalers is very severe, as the industry is dominated by a handful of wholesalers,” said a spokesperson from Kglwa who wished to remain anonymous. “Banning wholesalers from receiving illegal rebates won’t result in an increase in consumer prices because it functions as a means for manufacturers to keep good business relationships with wholesalers who could ultimately compel retailers to pick certain types of beverages.”

“The revision is expected to allow every wholesaler to take part in the competition at the same starting point,” said the Kglwa spokesperson.

Whiskey and liquors will not be subject to the regulation due to their limited sales and promotion methods.

Whiskey and liquor manufacturers and importers are able to provide incentives of up to 1 percent to wholesalers while entertainment establishments are permitted to receive an incentive up to 3 percent.

Unlike beer and soju, which are commonly consumed by the general public, the demand for higher alcohol beverages is limited. Under the current law, beverages higher than 17 proof cannot be openly promoted in mass media.

BY JIN MIN-JI [jin.minji@joongang.co.kr]