Gyeonggi-do Detects Unfair Practices by Famous Burger Franchise... Fair Trade Commission Public Interest Report

Gyeonggi Province has decided to report a well-known hamburger franchise headquarters to the Fair Trade Commission for unfair practices.

According to the province on the 5th, six franchisees of A Burger signed franchise contracts after being told by executives that the burger cost ratio was 42%, the profit margin was 28-32%, and the expected sales were 30 to 40 million KRW.

However, as the franchisees actually operated their businesses, the monthly average sales ranged from 27 to 41 million KRW, which met expectations, but due to a higher cost burden than the headquarters had indicated, profits were almost nonexistent or losses continued (-13%, -8.2%, etc.). They requested the headquarters to reduce costs or increase sales prices, but when their requests were denied, they applied to Gyeonggi Province for dispute mediation.

The province proceeded with mediation regarding the dispute application against Company A, but Company A maintained that to ensure price uniformity of burgers across all franchises, it could not allow some franchisees to raise sales prices or reduce costs, asserting that price control is the authority of the franchise headquarters.

The province made efforts to resolve the dispute through phone and in-person investigations with the parties involved, as well as on-site inspections and interviews with the CEO of Company A, but these attempts were unsuccessful.

According to Article 13, Appendix 2 of the Enforcement Decree of the current Franchise Business Act, it is permissible for the franchise headquarters to set sales prices and encourage franchisees to follow them, or to consult in advance with franchisees when deciding or changing sales prices. However, acts that maintain prices or unfairly restrict franchisees' price-setting activities, or force sales prices through prior consultation, are considered price-fixing acts and are defined as unfair trade practices.

The province decided to report the franchise headquarters to the Fair Trade Commission for providing false and exaggerated information to franchisees by inflating profit margins or understating costs at the time of contract signing, and for unfair practices such as price control in franchise operations.

The province plans to urge an investigation into the case. Furthermore, it will continuously request the National Assembly and government to amend related laws so that local governments can share investigative and disciplinary authority to monitor and supervise unfair practices.

Heo Seong-cheol, head of the Fair Economy Division of the province, said, "If local governments had not only the authority to mediate franchise business disputes but also investigative and disciplinary powers, the protection of franchisees' rights would be achieved more swiftly," adding, "We will continue to do our best to resolve disputes arising from unfair practices."

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