CJ admits selling Hetbahn on Coupang profitable after halting supply

CJ CheilJedang Corp.’s Hetbahn [Photo provided by CJ CheilJedang]

South Korea’s CJ CheilJedang Corp. praised sales through Coupang Inc.’s direct-to-consumer channel as more profitable than other e-commerce channels, contrasting with its explanation late last year that it would stop supplying Coupang with Hetbahn steamed rice due to low margins.

The reason for the high profitability is that manufacturers can save incidental costs as Coupang handles the delivery to consumers after product purchasing. This explanation was revealed in a recent report by U.S. investment bank JPMorgan that analyzed CJ CheilJedang.

According to sources on Monday, CJ CheilJedang recently explained to JPMorgan that direct sales through Coupang are more profitable than other online distribution channels. According to JPMorgan, 15 percent of CJ CheilJedang’s domestic food sales in the third quarter of last year came from e-commerce, of which Coupang accounted for 40 percent.

Coupang’s share of total CJ’s e-commerce sales increased by 10 percentage points each year, but CJ stopped supply to the Korean e-commerce giant, fearing that its reliance on direct purchases from Coupang would worsen its bargaining power in the future, according to the report. This explanation is expected to be controversial as it contradicts manufacturers’ stance that Coupang is forcing them to stop delivering due to excessively low margin rates.

Considering that Hetbahn is supplied to other e-commerce companies such as Naver and 11th Street despite their equally low margins, the reason behind the delivery price dispute is not only financial reasons.

In fact, a CJ CheilJedang official reportedly told JPMorgan that since Coupang operates Rocket Delivery, it requires less marketing and promotion compared to other open market platforms. Unlike other retailers, Coupang only receives Rocket Delivery goods from sellers and takes care of overnight delivery, as well as other tasks such as marketing and customer service, which means it is more profitable for manufacturers.

In this regard, CJ CheilJedang explained that the margin rate is slightly higher than that of other e-commerce companies when supplying Hetbahn to Coupang as a direct purchase product. CJ CheilJedang said that direct sales on Coupang cannot be equally compared to the abnormally low margin rates on other e-commerce platforms due to excessive discounting by sellers.

The key point is that for years, Coupang has been locking in the lowest selling price for manufacturers and consistently increasing its own margins, the official added.