Coupang's Push to Win Back Departing Customers, Supplier Price Hikes and Hefty Fines... Rocket Delivery's "Triple Whammy"

Rocket Delivery Profitability Nearly Halved
Cumulative Operating Loss of KRW 1.8 Trillion in the First Three Quarters
Will Annual Loss Top KRW 2 Trillion Amid Additional KFTC Sanctions?

Coupang, which has been increasing discounts to prevent customer attrition following a personal information breach, is facing mounting pressure on profitability as manufacturers continue to raise prices. As major food and household goods makers hike prices citing rising costs, the profitability of Rocket Delivery, which sells products purchased directly from manufacturers, is coming under greater strain. On top of the fine over the personal information breach, the possibility of additional sanctions from the Korea Fair Trade Commission is adding to Coupang's business burdens.

According to third-quarter results released on November 4 by Coupang Inc., Coupang's parent company, adjusted EBITDA for its core Product Commerce business, which includes Rocket Delivery, plunged 45% year over year to KRW 549.5 billion. Adjusted EBITDA margin, which measures profit as a share of revenue, also nearly halved, falling from 8.8% in the third quarter of last year to 4.5% this year.

Coupang as a whole posted an operating loss of KRW 642.3 billion. Even excluding the one-time cost of KRW 354 billion related to the July fire at its logistics center in Incheon, the loss amounted to KRW 288.3 billion. Despite growth in revenue, a sharp drop in earnings from its core business has raised concerns about the company's ability to restore profitability.

Manufacturers Raise Prices as Discounts Expand...Rocket Delivery Profitability Takes a Direct Hit

One factor putting pressure on Rocket Delivery's profitability is the wave of manufacturer price increases that gathered momentum in the second half of the year. Price hikes, led by food companies, have followed one after another since July. CJ CheilJedang raised prices by an average of 8% across 27 items, including Hetbahn and dumplings. Prices for its flagship Hetbahn product rose 12%, while dumpling prices increased 4.6%. Ottogi also raised the wholesale prices of 29 items, including curry, ketchup, glass noodles and pepper. Prices for pepper products rose by an average of 17%, glass noodles by 10%, and curry and ketchup products by 6.1% each. Pulmuone also raised consumer prices by an average of 6.7% across 30 items, including frozen fried rice and dumplings.

Analysts say that as major manufacturers raise prices one after another, Coupang is also facing upward pressure on costs because it directly purchases and sells branded products. Coupang Inc.'s consolidated cost of revenue ratio rose to 74.3% in the third quarter, up 3.7 percentage points from 70.6% a year earlier. This means that the direct costs of purchasing and selling products increased by that amount for every KRW 100 in revenue. However, this figure also includes inventory losses from the fire at the Incheon logistics center.

Even as its purchase costs rise, Coupang is finding it difficult to pass the full increase on to consumers. It needs to win back customers who left after the personal information breach, while also competing fiercely on price with rival platforms such as Naver. Coupang has absorbed some of the price increases itself and expanded discounts and coupon benefits, boosting revenue but reducing the profit it earns from product sales.

Coupang continued to hold large-scale discount events in the third quarter. In July, it held its flagship promotional event, Wow Members Day, offering discounts of up to 70% on major products, including food and daily necessities, as well as coupons for members. It also expanded special promotions to beauty and household goods to encourage customers to make purchases.

This strategy has helped bring customers back, but profitability has fallen sharply. Coupang's adjusted EBITDA for Product Commerce in the third quarter was KRW 549.5 billion, down 45% from a year earlier. Its cash-generating capacity nearly halved, with the decline exceeding those recorded in the second quarter of this year (-42%) and the first quarter (-35%). The Product Commerce margin was 4.6%, down 4.24 percentage points from a year earlier.

The fixed costs of the existing logistics network have added to the pressure. Coupang says that while the costs of maintaining logistics facilities and delivery networks built to handle order volumes before the incident have remained unchanged, customer attrition has kept shipment volumes below expectations, reducing cost efficiency. Gaurav Anand, Coupang's chief financial officer (CFO), said, "The deterioration in Product Commerce profitability was affected by high promotional spending to support a recovery in customer spending, as well as supply chain disruptions."

The Fine Is Still on the Table...Annual Operating Loss Could Exceed KRW 2 Trillion

As the burden of restoring profitability grows, additional regulatory risks are also a factor.

Coupang posted an operating loss of KRW 835 billion in the second quarter of this year after a KRW 624.7 billion fine imposed by the Personal Information Protection Commission was reflected in its results. With another large loss in the third quarter, its cumulative operating loss for the first three quarters of this year widened to KRW 1.8318 trillion. That is close to the KRW 1.8987 trillion in combined operating profit the company earned over the three years from 2023 to 2025.

Sanctions related to Coupang Eats by the Korea Fair Trade Commission are also pending. The commission is reviewing allegations that Coupang Eats required restaurants on its platform to offer prices and terms no less favorable than those offered on other delivery apps, a practice known as "most-favored treatment," as well as allegations that Coupang tied Coupang Eats to its Wow membership benefits.

During the commission's review in June, the expected fine in the most-favored treatment case was estimated at KRW 25 billion to KRW 42 billion. The possibility of a fine of up to hundreds of billions of won has also been raised over the tying allegation.

Coupang's cumulative operating loss currently stands at KRW 1.8318 trillion. If it incurs further operating losses in the fourth quarter or fines are reflected in its results, its annual operating loss is expected to exceed KRW 2 trillion.

Coupang maintains that the deterioration in profitability through the third quarter of this year is not a structural problem. Coupang Inc. Chairman Bom Kim said, "We do not view any of these factors as structural problems," adding, "Next year, the Product Commerce margin will recover to a level close to where it was before the personal information incident."

This content was produced with the assistance of AI translation services.