BBQ ordered to compensate for franchisees

BBQ Group Chairman Yoon Hong-geun

By Lee Kyung-min

An appeals court ordered “Genesis BBQ”, which operates the fried chicken franchise “BBQ”, on Tuesday to compensate store owners for making them pay for increased advertising costs after a menu price increase in 2005.

Under the contract terms, Genesis BBQ should have informed and obtained consent from store owners before launching any promotional events, but failed to do so.

The firm spent 6.6 billion won on advertising over eight months in 2005, but made some 1,800 shop owners pay 6 billion won of the money by increasing fees, saying the fee hike was inevitable because it decided to use more expensive olive oil for its products.

A group of 13 store owners filed a compensation suit after the firm received a warning in 2008 from the Fair Trade Commission (FTC) for violating the Franchise Business Law.

The Seoul High Court ruled against Genesis, ordering it to pay a total of 37.4 million won ($33,000) to the 13 plaintiffs.

Previously, the Seoul Central District Court ruled in favor of the plaintiffs in July last year.

According to the law, franchise owners are banned from abusing its dominant market status to force its contractors to pay any cost incurred during business.

The anti-trust watchdog ordered Genesis to correct its illegal business practice.

In 2005, Genesis decided to use more expensive oil. As a result, the cost of oil used for frying one chicken jumped to 1,475 won ($1.2) from 205 won.

Genesis subsequently increased the menu price by 2,000 won from 11,000 won to 13,000 won.

In fear of losing customers following the price increase, the company held 8 months of promotion events.

Without the promise of any financial support, it blindly ordered the shop owners to give consumers additional gifts such as chocolate, umbrellas, concert tickets and magazines.

The plaintiffs said they had to use money from their own pocket, individually spending up to 5 million won.

Park Seung-shin, a Genesis BBQ official, said the company changed the business practice since the FTC warning in 2008.

“We regret the burden caused by the promotion at the time, and we acknowledge it was wrong to impose individual shop owners the undue responsibility to boost sales,” Park said.

“Now, we have a committee consisted of 16 elected shop owners to deliberate on whether such strategy hurts individual shop owners. We reach decisions that best protect their rights,” he added.

The ruling raises a question as to whether Genesis BBQ is abusing shop owners overseas similarly.

Genesis BBQ is the largest local fried chicken franchise in Korea with 2,800 stores nationwide including some 1,800 BBQ stores and 650 BHC stores.

It expanded overseas market presence in the early 2000s. It has 350 stores in 30 countries including the U.S., China, Japan, Malaysia, Indonesia, India, Brazil, Saudi Arabia and Mongolia.