63% of Franchise Headquarters Provide Quarantine Support to Struggling Store Owners Due to COVID-19... "Need to Lower Supply Prices"

Fair Trade Commission, 2020 Franchise Sector Survey Results

Support Policies for Franchise Owners Related to COVID-19

Support policies required from franchise headquarters related to COVID-19 (all industries).

[Sejong=Asia Economy Reporter Joo Sang-don] Last year, 63% of franchisors provided quarantine support such as hand sanitizers and masks to franchisees struggling due to the novel coronavirus infection (COVID-19). However, franchisees responded that price reductions on supplies, royalty reductions or exemptions, and rent support were necessary.

On the 28th, the Fair Trade Commission announced the results of the "2020 Franchise Sector Survey." This was a written survey conducted from September to November last year targeting 200 franchisors (21 industries) and 12,000 franchise stores.

First, the proportion of respondents who said transaction practices had improved was 87.6%, up 1.3 percentage points from the previous year, and policy satisfaction was 87.5%, up 4.1 percentage points.

The Fair Trade Commission evaluated that positive results appeared, such as mutual growth efforts between headquarters and franchisees due to COVID-19 and the spread of non-face-to-face transactions, an increase in the proportion of franchisors forming franchisee associations, and a longer average interior renovation cycle.

62.8% of franchisors provided support such as quarantine assistance (32.5%) and royalty reductions or exemptions (23.0%) to franchisees. The actual proportion of franchisees who received support was 78.7%.

However, the support policies that franchisees felt were most necessary during the COVID-19 situation were price reductions on essential supplies (60.4%), royalty reductions or exemptions (47.6%), and rent support (43.8%), in that order.

Franchisors consider franchise store evaluation results most when renewing contracts for long-term stores (over 10 years), whereas long-term franchisees responded that contract termination due to non-participation in store environment improvements was most frequently mentioned.

The association membership rate was 40.8%, maintaining over 40% as in the previous year, but the experience rate of disadvantages due to association membership or activities increased by 12.0 percentage points to 20.5%. Among franchisees who joined franchisee associations, 33.3% experienced rejection when requesting consultation with the franchisor, 25.8% had no rejection experience, and 40.9% had no consultation request experience.

The proportion of franchisees who responded that prior consent is necessary for shared cost advertising and promotional events was very high at 96.1% in 2020, following 92.2% in 2019. When franchisors obtained prior consent, they conducted activities with an average of 78.7% franchisee agreement.

The Fair Trade Commission plans to prepare an amendment to the Franchise Business Act, including a franchisee association reporting system, prior consent system for advertising and promotions, and mandatory experience of operating directly managed stores (1+1), and submit it to the National Assembly within March. Additionally, within this year, they plan to improve related systems to protect franchisee rights due to the expansion of online sales, such as expanding disclosure of online sales information and revising the standard franchise contract.

A Fair Trade Commission official said, "We will closely monitor to prevent franchisees suffering from difficulties such as sales decline due to COVID-19 from being harmed by excessive penalties upon contract termination or store closure," and added, "We plan to expand the 'Guidelines for Stable Contract Renewal of Long-term Stores' from chicken and convenience stores to other industries to ensure stable contract renewals for long-term stores."

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