By Kim Tae-jong
The government is now targeting major coffee chain brands for allegedly using its dominant position to take advantage of franchise stores.
“We have received a lot of tip-offs about the anti-trust practices of major coffee chain brands against their franchised stores,” said an official of the Fair Trade Commission (FTC). “We plan to launch a full-scale probe to protect the livelihood of store owners.”
The anti-trust regulator’s target list will likely include five coffee franchise giants such as Caffe Bene, Angel-in-Us Coffee, TOM N TOMS, Hollys Coffee and Ediya Coffee. But Starbucks and Coffee Bean are likely to be excluded in the probe as their stores are directly managed by the company headquarters. The probe is set to start in April.
In the process, those on the list will be first examined as to whether they used their dominant position and unfairly treated the franchisees. The FTC will conduct an on-site inspection if necessary, the official said.
According to some tip-offs, franchise firms had forced subscribed store owners to unnecessarily renovate the interiors of store using expensive materials supplied by headquarters, threatening not to renew a franchise contract if they did not agree.
Market insiders argue such unfair practices are becoming prevalent as the nation’s coffee franchise market is dominated by a handful of major brands.
According to recent data, the size of the local coffee market increased to 3.6 trillion won ($3.2 billion) last year, up from 1.5 trillion won in 2007, showing a sharp increase in demand. Consequently, the market for franchise coffee chains also expanded to 1.3 trillion won last year, up from 436 billion won in 2007.
In a simple comparison, the number of franchised stores by Caffe Bene soared to 570 as of May last year, up from 17 in 2008.
FTC Chairman Kim Dong-soo has repeatedly issued warnings against key players with pledges to punish companies violating relevant regulations.
“It is important for franchise brands to comply with relevant regulations, because it helps develop a healthy business culture for all parties involved,” Kim said during a news conference early last month.
Such remarks are also in line with a series of FTC’s probes into big businesses in recent months. The regulator has recently investigated department stores and discount chain businesses, which are now controlled by big two players, Lotte and Shinsegae.