Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Will 'gapjil' culture vanish in Korea?
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Fair Trade Commission Chairman Kim Sang-jo, third from left, speaks at a meeting to eradicate “gapjil” at franchises. The meeting was hosted by the minor opposition Bareun Party at the National Assembly on Yeouido, Seoul, July 27. / Yonhap
By Park Jae-hyuk
FTC chairman emerges as savior of abused franchisees
By Park Jae-hyuk
Operating franchise businesses in Korea has often been likened to the “vicious landlords” in the pre-modern Joseon Dynasty.
The way franchises mistreat their franchisees has been regarded in the same way as “Joseon’s landowners” abusing their tenant farmers.
Although the landowning class disappeared after a land reform law enacted in 1949, their tyranny seems to have continued under the name of “gapjil culture” ─ bullying the weak in modern times.
Gapjil, roughly translated as “high-handed” or “heavy-handed” conduct of abusing one’s prominent position and power, derives from the contract term “gap” (party A, who leads) and “eul” (party B, who is led). This is also commonly found in labor contracts between an employer and an employee here.
While landlords and franchise headquarters are regarded as “gap,” tenant farmers and franchisees are categorized as “eul.”
Similar to landless peasants who could not fight their landlords collecting of unfair rent, franchisees say they have been unable to stand against their headquarters.
They fear potential losses over a tarnished image of the brand and the possibility of losing their stores. They knew that for most stores, it is impossible to survive here, if they do not hang up signs of famous brands.
“We cannot reveal the headquarters’ misconduct, although we know it,” said a franchisee on condition of anonymity. “It is obvious that we will suffer losses as well.”
Franchisees are also worried that their headquarters will retaliate against the cancellation of franchise deals.
Mr. Pizza, whose founder has been arrested for alleged embezzlement, actually opened new stores near the stores of previous franchisees, forcing ingredient manufacturers not to supply cheese and sauce to them.
One of the former franchisees even committed suicide in March over the retaliation.
Franchisees therefore have had to accept unfair terms in contracts with the headquarters.
The landlords in modern era, however, have recently begun to feel a sense of crisis, after the left-leaning Moon Jae-in administration appointed Kim Sang-jo, dubbed the “chaebol sniper,” as Fair Trade Commission (FTC) chairman.
The chairman pledged to “wipe away the tears of the weak” in his inauguration address, declaring a war against the malpractices prevailing in the country’s franchise industry.
His promise has been supported by the public, following the exposure of various “gapjil” cases in the industry.
Mr. Pizza founder Jung Woo-hyun apologized for the retaliatory measures against previous franchisees. Genesis BBQ, which has been accused of shifting costs for advertisements onto its franchisees, apologized to consumers and withdrew its plan to raise chicken prices.
Lately, Bachelor’s Vegetable Store founder Lee Young-seok has drawn criticism over his alleged assaults and insults to franchisees. Apologizing to the public, he shut down the company’s website.
In addition to these, “gapjil” cases at various other franchises, including Pizza Hut, Pizza Etang, Sinseon Seolleongtang, Bonjuk and Aritaum have emerged from the shadows and drawn public attention.
Some people have even spotlighted Namyang Dairy Products’ abusive practice in 2013 that forced its sales agents to buy more products than needed. Namyang executives also bowed “as a traditional form of apology” in front of cameras at that time.
Fair Trade Commission (FTC) Chairman Kim Sang-jo, right, speaks with Korea Franchise Association (KFA) Chairman Park Gi-yeong during a meeting between the FTC and the KFA at the Korea Chamber of Commerce & Industry in Seoul, July 28. / Yonhap
Expectations for change
Amid growing concerns in the franchise industry, the FTC has carried out a survey on 50 franchises specializing in food and beverages. It aims to come up with the results by the end of next month.
Kim also announced last month that the FTC will unveil distribution margins for each franchise. He said the headquarters will be urged to disclose prices of products purchased by all of their franchisees.
In response to the plan, Korea Franchise Association (KFA) Chairman Park Gi-yeong held a sudden press conference at the K-Biz building in Yeouido, Seoul, the next day after Kim’s announcement.
Apologizing to the public, Park demanded the FTC allow some time for franchises to change themselves, as the watchdog did to conglomerates. After a meeting with Kim at the Korea Chamber of Commerce & Industry in Seoul, July 28, however, Park said that “We resolved some misunderstandings.”
In addition to the KFA, the disgraced Genesis BBQ came up with immediate measures.
BBQ Vice Chairman Kim Tae-cheon vowed that the fried chicken franchise will introduce measures to ease the financial burden on its franchisees and make its management more transparent.
“We will disclose our profit margins as part of our efforts to share more information with our franchisees,” the vice chairman said in a sudden press conference July 27. “This decision may send a ripple effect across the franchise industry. However, we decided to take this unprecedented move to show our resolve to create a fairer business environment.”
Against this backdrop, there have emerged some opinions that the government and media should not denounce all franchises as evil.
Rep. Hong Chul-ho of the minor opposition Bareun Party said the FTC should sincerely listen to franchise headquarters which are often regarded as “gap.” Hong is a founder of Goobne Chicken, one of Korea’s leading chicken franchises.
“Franchisees sometimes blame the headquarters for low profits,” he said in a meeting with the FTC chairman at the National Assembly on Yeouido, Seoul, July 27. “The headquarters may tarnish the brand images, but some lazy franchisees may also have conflicts with their employees.”
Franchise industry officials also pointed out that not all malpractices reported by media are results of “gapjil.”
“For example, we have no right to meddle in working conditions and salary issues of part-time workers at each store,” an industry official said, requesting anonymity. “The current law limits headquarters’ rights to manage franchisees.”
The FTC, however, seemingly wants to make every effort to eradicate the “gapjil culture” in the industry. It has begun to investigate the so-called category killers, such as Daiso Asung, CJ Olive Young and Lotte Hi-mart as well.
The Seoul Metropolitan Government and the National Police Agency are also keeping pace with the FTC.
The city government, which has surveyed franchisees since last month, will collect complaints from them.
Common complaints are expected to include the why franchisees are pressured to pay for brand advertisements without being told how the money was spent, to redo interior design in the shop periodically despite no need to do so, and the termination of contracts for reasons not listed in the terms and conditions.
The National Police Agency has this month also begun to crack down on misconduct against franchisees, subcontractors, small retailers and non-regular workers.