A game of chicken: Lotte fried over ethics debate

An employee listens to customers complaining about not being able to buy fried chicken at Lotte Mart’s Yeongdeungpo store in Seoul, Thursday. Some 98,000 baskets, each priced at 5,000-won, were snapped up by buyers at 82 Lotte Mart stores nationwide in the first four days of sale till Sunday. / Korea Times photo by Cho Jin-seo Small eateries cry foul, but discount store chain says it’s fair game By Cho Jin-seo It’s lunchtime at Lotte Mart in Yeongdeungpo, Seoul, Thursday. A dozen people are gathered at the takeout food corner and they do not look happy. ““So what time are you telling me to come tomorrow for a chicken?” a woman asks in an angry voice. “We open at 10 a.m. and if you are here then, we will put you on the reservation list. But we still cannot guarantee that you will get one,” the manager replies, and repeats the message to other disgruntled shoppers. It’s just ordinary fried chicken that Lotte is selling at its 82 discount stores, but one still needs to come early in the morning and join a long queue, as if it were Apple’s newest iPhone model. The reason for the absurd popularity is its price. At 5,000 won ($4.50) for a regular-sized chicken, it is less than half the price of other stores. A few hours later, a different sort of protest was held outside the discount store. The people chanting anti-Lotte slogans were owners of local chicken eateries nearby. On the internet, a couple of groups claiming to be the Association of Chicken Franchises and the Association of Independent Chicken Bars made separate announcements on Friday that they would boycott Lotte’s products. More specifically, the latter began to collect signatures to boycott Pepsi, which is bottled and distributed in Korea by a Lotte subsidiary. “It’s like throwing eggs against a rock. We may not be able to shatter the rock but we can shame it,” their statement read. Bars, restaurants and delivery shops usually sell a fried or baked chicken for between 10,000 and 18,000 won (around $9 to $16). There are many domestic chicken franchises, such as BBQ and Kyochon. Though they are seemingly expensive, the Korean-style fried chicken, served with chilled beer and pickled radish, is so popular that global brands such as KFC and Popeyes are relegated to minor players here. Now Korean chicken franchises are even expanding into the United States, the home country of Colonel Sanders. Since frying chicken does not require highly sophisticated skills or large financial investment, opening a chicken eatery is one of the first options people consider for retired life. But shops are everywhere and competition is becoming intense. In the Seoul neighborhood where this reporter lives (population: 13,600), there are now 11 chicken eateries. A decade ago, there were three. In this climate, Lotte’s entry into the fried chicken sector has become a hot political issue. The firm is one of two major operators of discount stores in Korea along with Shinsegae’s E-mart. Many people, the media, and even some politicians have begun to knock the company for crossing the line and threatening the business of chicken franchises and bars. Even an official at the presidential office has joined the wave of Twitter users in lambasting Lotte. Jeong Jin-seok, senior secretary to the President for political affairs, wrote that Lotte is immoral in selling the chickens “below cost” in order to steal customers from some 30,000 small chicken stores in the country. His remark was politically clever, but is unlikely to be true. The Fair Trade Commission said Friday that there is no evidence yet that Lotte is selling at below cost, given a raw chicken costs around $3 and there is nothing much to add. And since Lotte limits the daily quota to 300 chickens per store, it is difficult to see the firm is trying to drive out all the chicken franchises and monopolize the market, the antitrust watchdog said. An emotional issue Won Jong-moon, professor of marketing and distribution at Namseoul University, agree that it is wrong to believe Lotte is becoming a significant threat to neighborhood chicken restaurants. A simple calculation proves this. Selling 300 chickens every day for 5,000 won in each of its 82 stores means around 45 billion won ($40 million) in sales per year. This is equivalent to about 1 percent of Lotte Mart’s annual revenue (around 5 trillion won), and is no more than the revenue of any well-known chicken franchise in Korea, Won says. “Having one more chicken franchise cannot kill all the existing ones, so the launch of Lotte Chicken is not a huge deal. But small shop owners and chicken franchises are sensitive to this because Lotte is a conglomerate.” It is not the first time that a dispute has arisen between large retail firms and small-time local grocers and shopkeepers. Shinsegae’s E-mart, the largest discount store chain in Korea, was on target earlier this year to sell gasoline and pizza at its stores at relatively low prices. In each case, public opinion has been divided. On one side, people and politicians seem to worry that the retail giants are killing local markets and their culture, and that this will eventually turn every town into a “Tesco Town.” On the other hand, many consumers are happy to save money and hope that this kind of price competition can benefit society in line with the principle of a free market. As for fried chicken people think that well-known local franchises such as BBQ and Kyochon have been ripping off customers and that Lotte’s entry into the market can stimulate healthy competition. There is no rule banning Lotte from selling fried chicken. But the problem with big retail firms like Lotte is that they are already hated for many other reasons. The big three players ― Lotte, Shinseage and Tesco HomePlus ― are most hated for opening “express” size stores _ dubbed Super Supermarkets (SSM) in city centers and near traditional markets. NGOs have said this is leading to the collapse of small grocers and town communities, as witnessed in many other countries around the world. Reflecting this, the National Assembly just passed a law this month that bans large retailers from opening shops near traditional markets. A game of chicken Despite this negative public sentiment, Won, the Namseoul professor, says the retail firms will continue to try diversifying and launching “bait” items such as E-Mart pizza and Lotte chicken in order to survive in a cutthroat environment. “Retail is a game of chicken, where you can only win by being bold. Selling fried chicken and pizza at a little or no profit is a sign that there is a growing pressure on the large retail firms,” he says. “This is also because Korean consumers are very dynamic. They are willing to travel a great distance for a slightly better price, not thinking about the time and energy they spend in that. It is wrong to assume that consumers are logical. The discount stores know that very well.” What about the mom-and-pop chicken outlets then? “If they try to win this battle against discount stores by using the media, it is likely to backfire. People may side with the small businesses emotionally, but still they will shop at Lotte Mart, because that’s where the chickens are cheaper,” Won said. “It would be wiser for the chicken bar owners to appeal to the corporate social responsibility issue and try to put some political pressure on them.” One thing that the small chicken bar owners can rely on is that Koreans forget things as fast as they find them. “I think things will calm down by next week,” the manager of Lotte’s Yeongdeungpo store said. “The queue may disappear by then, and we will be back to business as normal.”

cjs@koreatimes.co.kr