Forced Headquarters Purchase of Oil Paper and Sieve... Fair Trade Commission Imposes Heavy Fine on Dunkin'

BR Korea Fined 2.136 Billion KRW
for Forcing Franchisees to Buy Supplies Exclusively from Headquarters

The Fair Trade Commission has sanctioned the Dunkin' Donuts franchise headquarters, BR Korea, for abusing its power by forcing over 630 franchisees to purchase kitchen strainers, greaseproof paper, and other consumables exclusively from the headquarters.

On the 13th, the Fair Trade Commission announced that it would impose corrective orders and a fine of 2.136 billion KRW on BR Korea for violating the Fair Trade Act. As of the end of 2023, BR Korea, the Dunkin' Donuts franchise headquarters, reported annual sales of 706.5 billion KRW and had 631 franchise stores.

According to the Fair Trade Commission's investigation, BR Korea designated 38 items, including kitchen equipment and consumables, as mandatory products and restricted franchisees to purchase these items only from the headquarters. The mandatory items forced by BR Korea included store equipment such as refrigerated worktables, sinks, and donut display cases, as well as various consumables like strainers, sandwich boxes, greaseproof paper, and oilproof paper.

Mandatory items are those that the franchise headquarters requires franchisees to purchase exclusively from designated suppliers to maintain brand consistency and other reasons. According to the Franchise Business Act, for the designation of mandatory items by the headquarters to be lawful, the items must be essential for franchise business management, necessary for trademark protection and product uniformity, and must be disclosed in advance through the information disclosure document before signing the franchise contract.

The Fair Trade Commission judged that the 38 mandatory items designated by BR Korea were not directly related to the taste or quality of the products and that it was objectively difficult to recognize that purchasing exclusively from BR Korea was essential for franchise business management. Therefore, it excessively restricted the franchisees' freedom of choice.

Additionally, the Fair Trade Commission issued a warning sanction against BR Korea for improperly providing the nearby franchise status document. According to the Franchise Business Act, the franchise headquarters must provide prospective franchisees with a document listing the status of the 10 closest franchise stores to the planned store location during the contract process.

BR Korea, when concluding nine franchise contracts, omitted closer franchise stores and instead provided information on more distant stores, thereby hindering the prospective franchisees' reasonable judgment.

The Fair Trade Commission stated, "This action strictly sanctions the franchise headquarters for unnecessarily forcing franchisees to purchase items that are not essential to the franchise business exclusively from the headquarters." It added, "This serves as a warning to prevent excessive designation of mandatory items by franchise headquarters and is significant in establishing fair trade order in the franchise sector."

It also expressed expectations that "prospective franchisees will be able to make more thorough decisions about opening franchise stores by receiving accurate nearby franchise status documents."

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