JFTC Finds Costco Violated Subcontract Law; Cut Agreed Upon Payments to Suppliers

Yomiuri Shimbun file photo
A Costco store in Chiba Prefecture

The Japan Fair Trade Commission on Tuesday issued a recommendation to Costco Wholesale Japan, Ltd. after finding that the company violated the Subcontract Law, saying it unilaterally lowered prices it paid to subcontractors that produce food for its private brand.

The recommendation calls on the operator of the U.S-based membership supermarket Costco stores in Japan to prevent any further recurrence of such incidents.

A total of 23 subcontractors suffered losses amounting to about ¥35.5 million, the JFTC said. The Chiba-based Costco Wholesale Japan repaid each supplier last month.

According to the JFTC’s announcement, Costco Wholesale Japan deducted a total of about ¥33.5 million from payments to subcontractors that manufacture products such as ready-made dishes and confectionaries under Kirkland Signature, Costco’s private brand, under the pretext of being sponsorship money for special sales and new store opening sales. The JFTC found that Costco Wholesale Japan had committed these violations between November 2021 and December 2023.

In addition, the JFTC found that Costco Wholesale Japan improperly returned products worth about ¥2 million to suppliers due to bruises, foreign matter contamination or other issues, despite the fact that it did not conduct quality inspections at the time of delivery.

The improper price reduction and return of products are believed to have continued for an extended period, but vendors complied out of concerns that Costco Wholesale Japan would terminate their contracts. Some vendors were forced to provide merchandise free of charge when Costco Wholesale Japan opened new stores, and others had their product prices cut even after explaining to Costco Wholesale Japan that they could not support the price cuts because their businesses were in serious financial trouble.

The U.S. supermarket operator Costco Wholesale Corp. entered the Japanese market in 1999 and Costco Wholesale Japan currently operates 33 stores nationwide. “We’ll abide by the recommendation and work to improve our operations,” Costco Wholesale Japan said.