On May 3, 2024, the Korea Fair Trade Commission (“KFTC”) amended the Notification on Designation of Unfair Conduct by Businesses in Consumer Transactions (“Notification”) to designate “shrinkflation” as a new type of unfair conduct.
“Shrinkflation” refers to manufacturers’ making changes to their product regarding volume, size, weight, quantity or key ingredients (e.g., raising of the unit price of a packaged product by reducing the product’s content size or volume while maintaining its retail price) without notifying consumers, and is prohibited under the Framework Act on Consumers (“FAC”).
The amendment will take effect on August 3 to allow companies sufficient time to make necessary preparations. The KFTC has also prepared a set of guidelines to help companies easily understand and comply with the amended provisions.
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Key Details of the Amendment
The amendment applies to staple items closely related to daily essentials selected based on items requiring unit price labeling under the Ministry of Trade, Industry and Energy’s Instructions on Price Marking System Implementation, and items subject to price monitoring by the Korea National Council of Consumer Organizations or the Korea Consumer Agency. (Please refer to the following attachment for a full list of regulated items, Link).
The amendment requires companies that either manufacture their own products or order original equipment manufacturing (“OEM”) or original development manufacturing (“ODM”) products to notify consumers of an important change to its product (e.g., to the quantity of a key ingredient) for at least three months (i) on the product packaging, (ii) on the company’s website, or (iii) at the product’s place of sale (including online sales pages). Failure to do so may result in an administrative fine pursuant to Article 86 of the FAC (KRW 5 million for the first violation, KRW 10 million for the second violation).
Such notification is also required when a product is relaunched with new packaging if the content is identical to a previous product. The amendment, however, exempts notification when there is no change in the unit price of the product (e.g., by reducing content size or volume and reducing the retail price accordingly) or when the change is within 5% of the previous content size or volume. Further, if the sale of a product that requires notification ends, or its content size or volume is further changed, within the three-month notification period, the company may take down the notification ahead of time
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Related Developments at the KFTC
The amendment requiring companies to inform consumers of important changes to their products establishes a foundation for the KFTC to strengthen its system for monitoring manufacturing companies, which aims to help consumers’ make reasonable choices and protect their right to know.
The amendment strongly reflects the KFTC’s commitment to regulate consumer rights in response to “shrinkflation” as was announced earlier this year in the KFTC’s Enforcement Plan for 2024.
Accordingly, it will be necessary for companies going forward to properly inform consumers when reducing the volume, size, weight and number of products in accordance with the amendment, so that consumers do not end up bearing the burden of unit price increase without their knowledge.
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[Korean Version]
