Lawmaker accuses GS Retail of inflating supply costs through unnecessary middlemen

GS Retail has been accused of inflating product costs by routing purchases through unnecessary middlemen, hurting franchise owners' margins in the process.

Democratic Party of Korea lawmaker Han Min-su raised the allegation Monday at a National Assembly audit of the Financial Services Commission. "Unnecessary vendor intermediaries in the supply chain are pushing up consumer prices and cutting into franchise owners' margins," Han said. "Is there effectively no oversight mechanism at all?"

According to documents Han released, a vendor company called Hanbyeol began consulting with GS Retail on store listings in October 2020, before the firm was even incorporated. Hanbyeol was formally established as a corporation in January 2021 and registered as a GS Retail partner the following month.

GS Retail sourced batteries through Hanbyeol at supply prices 120 percent higher than those of rival CU, which purchases batteries directly. From 2022 through recently, Hanbyeol recorded 17 billion won ($12.7 million) in sales to GS Retail. The company employs just three people and posted sales of 7.4 billion won last year.

Han also said Hanbyeol carried no inventory assets whatsoever. Vendor companies are generally expected to purchase products in advance and deliver them to distribution centers, but Hanbyeol's financial statements showed no inventory at all. Han further raised allegations that GS Retail had entrusted supply contracts to a so-called "revolving-door" firm — one set up by a former GS Retail employee.

"GS Retail laid the groundwork and let this company collect a toll while doing nothing," Han said. "When allegations surfaced of a connection to the owner family, GS Retail scrambled to downplay them." He added that GS Retail appeared to have handed Hanbyeol's chief a lucrative arrangement.

GS Retail Executive Vice President Oh Jin-seok said the company is "closely examining what internal issues may exist."