"Large-scale Distribution Act, Rather Harmful to Small Businesses"

Franchise Headquarters Classified as Retailers

Structure Causing Disadvantages to Convenience Store Owners

[Asia Economy Reporter Lim Hye-seon] The "Act on Fair Transactions in Large-Scale Distribution Business (Large-Scale Distribution Act)," created to regulate large corporations abusing their superior bargaining position, has been found to instead harm small business operators. By including franchise headquarters such as convenience stores and drugstores under the Large-Scale Distribution Act without properly reflecting the characteristics and intent of franchise businesses, the law is reducing the benefits of small franchise store operators.

According to the convenience store industry on the 12th, convenience store owners are experiencing disadvantages due to the Large-Scale Distribution Act. A key feature of franchise businesses is that the headquarters purchases products used by franchise stores in large quantities to lower purchase prices. In this process, the franchise headquarters does not directly deal with consumers but acts like a wholesaler connecting franchise store operators, who are the consumer-facing parties, with manufacturers (suppliers).

However, under the Large-Scale Distribution Act, franchise headquarters are classified as regulated retailers. In particular, when promotional events such as inventory clearance are held at convenience stores and drugstores, manufacturers, franchise headquarters (convenience store headquarters), and franchise store operators (convenience store owners) share promotional costs equally at a 5:5 ratio. Because franchise headquarters find it difficult to negotiate unit prices through bulk purchases with manufacturers, the law ends up protecting manufacturers rather than franchise store operators, whom it is supposed to safeguard. Professor Choi Young-hong of Korea University, who participated in the study, pointed out, "The regulated entities should be large-scale retailers, but the law mistakenly includes franchise headquarters, which correspond to wholesalers, as regulated subjects."

The Large-Scale Distribution Act has undergone several amendments since its enforcement in January 2012. While it has had positive effects such as improving unfair trade practices by large distribution companies, the law’s scope is excessively broad, and it does not apply to open market operators who manage online tenant businesses, which has been criticized as a problem. A representative of the Convenience Store Industry Association stated, "It is difficult to say that businesses holding dominant market positions in products like ramen and beverages have an inferior position compared to convenience store franchise headquarters, so franchise headquarters often have to accept manufacturers’ demands. This results in increased supply prices for franchise store operators, causing them disadvantages. Excluding convenience stores, drugstores, and similar businesses through related law amendments is necessary to prevent small franchise store operators from suffering."

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