Food Franchises Ordered to Stop Exploiting Outlets
By Kim Hyun-cheol
Staff Reporter
The nation's antitrust watchdog has ordered 18 restaurant franchises to revise contract agreements that pass some business expenses unfairly to their branch shops.
In an investigation of a total of 20 local companies, nine pizza and nine fried chicken franchises were revealed to have been conducting this improper business practice, the Fair Trade Commissions (FTC) announced Tuesday.
Accused franchises included some leading brands in the industry such as Pizza Hut, Mister Pizza and Gyochon Chicken, and the number of unfair provisions totaled 58 in 14 different categories
Eight franchises including Pizza Hut Korea and Gyochon F&B were ordered to correct their contracts with franchise branches. Those makers demanded that their branch shops pay costs for interior renovation without any prior negotiation.
Four franchises including Mister Pizza Group forced all branch operators who newly purchased their shops from previous owners to pay all membership fees, but the agency ordered a revision of the practice so new operators pay only part of them.
Branch owners have so far been prohibited from opening any other franchise restaurants even after the expiration of their contracts, but the ban will be confined to the exact same kind of business in a revised measure. Instead, provisions for respecting confidentiality will be newly applied to the contracts.
In addition, the FTC changed the franchises' "all-cash" policy for their branch restaurants, so their owners can pay by credit card for expenses taking place in transactions with their parent franchises.
The FTC said the current business system was prone to put branch operators at a disadvantage in relation to food franchises, and the action was aimed at protecting the weaker half of the business.
"Owners of food franchise restaurants tend to be exposed to the dangers of improper and unfair contracts because of a lack of information and experience," an FTC official said.
"Once they open restaurants, cancellation of such contracts becomes difficult with the burden of initial spending, and they are easily subject to unfair requests from their franchises in the end."