Korea’s largest low-cost coffee chain operator fined for unfair business practices

A logo of Mega MGC Coffee is displayed at a retail store in Seoul in this undated file photo. Yonhap

AnnHouse, the operator of Mega MGC Coffee, has been slapped with a fine of 2.29 billion won ($1.63 million) for abusing its influence on franchisees by shifting gift certificate commissions to them, the Fair Trade Commission (FTC) said Wednesday.

The watchdog also ordered the operator of the nation’s largest low-cost coffee chain to rectify its unfair business practices. The company is suspected of forcing its franchisees to pay a commission of 11 percent on mobile gift certificate sales between August 2016 and July 2020, according to the FTC investigation.

AnnHouse should have received consent from its franchisees before passing the financial burden onto them, according to the watchdog. As a result, the coffee franchisees were forced to bear the financial burden of some 276 million won for two years, beginning in 2018.

The fine is the largest imposed on a food service operator for violation of the Franchise Business Act here, the FTC said.

The watchdog expected the latest sanction to build a transparent transaction environment among local franchise business operators.

AnnHouse was also caught forcing its franchisees to purchase ice machines and coffee grinders from the operator between December 2019 and February 2025. They were designated as a “must-buy” item by AnnHouse.

If its franchisees did not buy them from AnnHouse, the operator suspended supplies of raw materials to them. Any franchisees that did not abide by the rule were also forced to cancel their contract with AnnHouse, under a clause included in its contracts with the franchisees, the FTC investigation showed.

While the coffee chain operator received consent from franchisees for its planned promotional campaigns held for a year beginning in May 2022, the company did not properly provide them with details on the cost and duration of the campaigns.

“This is a penalty levied on a fresh type of unfair transaction act amid the rapidly growing online market,” an official from the watchdog said.

The FTC pledged to take stern measures against such undue practices by franchise operators and continue monitoring such cases so that franchisees are treated fairly by the head offices.