"A Store Opened with Retirement Money"... Mamstouch Franchisee Faces Unsmiling 300 Million Won Fine

"Is there any benefit to franchisees when the Fair Trade Commission fines the headquarters? None at all. While it is natural that the act was judged illegal, the suffering caused when the supply of ingredients was cut off cannot be compensated. I have yet to receive even a single apology from the headquarters."

On the 31st, Hwang Seong-gu, the representative of the National Mom's Touch Franchisee Association and owner of the Sangdo Station branch, said this as the Fair Trade Commission imposed a fine of 300 million KRW on Mom's Touch headquarters for violating the Franchise Business Act. On that day, the Fair Trade Commission viewed the termination of the franchise contract due to the formation of the franchisee association as a serious violation and issued a corrective order.

Hwang Seong-gu, the owner of the Mom's Touch Sangdo Station branch and representative of the National Mom's Touch Franchise Owners Association, is giving an interview on the 31st.

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Opened in 2019, the Mom's Touch Sangdo Station branch is an excellent franchise included in the top 1% in sales ranking. Although the store is less than 30 pyeong (approximately 99 square meters), it attracted many customers, even recording first place in sales for three consecutive months. However, in August 2021, the headquarters notified the termination of the contract. This was retaliation by the headquarters for Hwang forming the national franchisee association. Having opened the store with retirement funds after an honorable retirement from working as a branch manager at Woori Bank, Hwang suffered so much that he once considered an extreme choice. Fortunately, in October 2021, the court ruled that if the headquarters did not supply ingredients to the Sangdo Station branch, they must compensate 50 million KRW per day, allowing Hwang to operate the store again after two and a half months.

Two Mom's Touch employees visited the Sangdo Station branch, which led the formation of the association, and urged the franchisee to resign from the chairman position, saying, "We cannot recognize an association hostile to the headquarters." However, despite the headquarters' tyranny, Hwang did not give up on the franchisee association. Currently, about 470 branches participate in the association.

The reason Hwang formed the association was to convey the franchisees' opinions to the headquarters and to have negotiation rights regarding prices and other matters with the headquarters. Hwang said, "Although the headquarters, which supplies goods in bulk, and the franchisees, who cook and sell them, are on the same boat, the decision-making power mostly lies with the headquarters," adding, "The contract states that prices should be 'consulted with franchisees,' but since this was not honored, we formed the association."

In fact, after Mom's Touch was acquired by the private equity fund KL&Partners, the headquarters implemented pricing policies that franchisees found difficult to accept. For example, in January 2020, although the purchase price of the spicy patty that the headquarters bought dropped (from 647 KRW to 617 KRW), the supply price to franchisees increased by 16.4% (from 833 KRW to 970 KRW). Subsequently, the consumer sales price was raised by 5.9%, but the supply price of the spicy patty to franchisees was increased by a higher 8.2% (from 970 KRW to 1,050 KRW). Afterward, Mom's Touch's net profit increased by more than 10 billion KRW, from 12.9 billion KRW in 2019 to 23.3 billion KRW the following year.

Hwang said, "It really pains me to speak ill of the headquarters," but bitterly added, "The headquarters acquired by the private equity fund is solely interested in profit pursuit."

Meanwhile, Mom's Touch headquarters stated in a press release after the Fair Trade Commission's decision, "We respect the deliberation results," but also expressed regret that their explanations were not accepted and said they would consider follow-up measures such as filing an objection.

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