Gyeonggi-do, Public Interest Report to Fair Trade Commission on 'Unfair Practices' by Famous Dining Franchise

On the 18th, Gyeonggi Province reported unfair practices by a famous food franchise company A, which excessively forced franchisees to purchase mandatory items, to the Fair Trade Commission.

Mandatory items in the food service industry refer to products related to the uniformity of the franchise business, specifically those related to the taste or quality standards of the main products. When an item is designated as mandatory, the franchisor can specify the supplier, and franchisees are compelled to purchase it.

Company A supplied mandatory item a to franchisees but changed it to a lower quality b product at a higher price than originally advertised. Later, when a franchisee independently purchased the advertised quality a product to serve customers, Company A terminated the franchise contract and claimed triple the supply price as damages.

Additionally, Company A designated general commercial products or widely distributed market goods, which are not directly related to the taste or quality of the product, as mandatory items, forcing franchisees to purchase them at high prices from Company A or its designated suppliers.

Furthermore, contrary to the information disclosed on its website, Company A posted excessively high expected sales figures and prepared and provided sales forecasts without considering the characteristics of each store.

Gyeonggi Province explained that after receiving multiple joint dispute mediation requests from Company A’s franchisees and confirming unfair practices during the dispute mediation process through the Franchise Business Transaction Dispute Mediation Council, it attempted to resolve the disputes reasonably. However, since Company A refused mediation, the province decided to report the case to the Fair Trade Commission to protect franchisees and ensure the effectiveness of the dispute mediation system.

Gyeonggi Province believes that Company A’s actions may involve false or exaggerated information provision, restricting trading partners, unfair termination of franchise contracts, and forced purchases under the Franchise Business Act.

In particular, regarding mandatory items, the province holds the view that the practice of designating widely distributed market goods or commercial products unrelated to the main product’s taste or quality as mandatory items?such as affixing the franchisor’s logo or slightly altering ingredients like other companies?should be improved to prevent unfair profits.

Heo Seong-cheol, Director of the Fair Economy Division of Gyeonggi Province, stated, "When the franchisor designates mandatory items, even easily available market goods or commercial products are forced to be purchased, and unilateral price increases are difficult to challenge under the guise of trade secrets. We hope that through improvements in the Fair Trade Commission’s system, such unfair profit-taking by franchisors will be prevented, a fair trading environment will be established, and the difficulties faced by franchisees will be alleviated."

Gyeonggi Province operates the Fair Trade Support Center, providing damage consultations and dispute mediation not only for franchise business transaction disputes but also for small and medium-sized businesses facing difficulties in all areas related to fair trade, including agency, subcontracting, large-scale distribution, and general unfair practices.

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