Woo-hyun Jeong, the founder of Mr. Pizza, is under police investigation for allegedly raising the price of cheese supplied to his franchisees by illicitly having companies of his relatives involved as intermediaries (Image: Yonhap)
SEOUL, Jun. 29 (Korea Bizwire) — As the number of franchise businesses in South Korea such as fried chicken restaurants is increasing exponentially, conflict between franchisors and franchisees is on the rise. The number of franchisors that were sanctioned by the Fair Trade Commission for violating the Franchise Business Act has increased fourfold compared to last year, while dispute mediation requests have increased by almost 30 percent.
Franchise firms abuse their dominant position in the market to exploit their franchisees. Public attention is now focused on the new administration, with many questioning whether the government will attempt to resolve conflict in the franchise business via the Fair Trade Commission and increased prosecution of offenders.
On June 27, industry sources revealed that there have been 15 sanctioned cases for violations of the Franchise Business Act this year, already surpassing last year’s total of 12.
The firms that were fined by the Fair Trade Commission for violations such as unfair trade and the provision of false information are three restaurant franchises, including Pizza Hut Korea, Jaws Food and Bon IF, and one beauty franchise, Tonymoly. Additionally, two firms were issued a corrective order and nine firms were issued a warning notice.
The number of dispute cases between franchise firms has increased as well. There were 280 dispute mediation requests filed at the Korea Fair Trade Mediation Agency from January to May this year, representing a 28 percent increase from the same period last year.
Lately, cases of unscrupulous business practices on the part of franchisors have dominated headlines nationwide. Woo-hyun Jeong, the founder of Mr. Pizza, is under police investigation for allegedly raising the price of cheese supplied to his franchisees by illicitly having companies of his relatives involved as intermediaries. He resigned from his position as president of the company on June 26.
On June 27, industry sources revealed that there have been 15 sanctioned cases for violations of the Franchise Business Act this year, already surpassing last year’s total of 12. (Image: Kobiz Media)
These increased disputes are correlated with a rapid surge in franchised store openings, particularly pizza and fried chicken restaurants. According to industry data, the number of franchisees has increased by 24 percent compared to four years ago, with close to 220,000 franchised stores currently in operation.
Due to soaring unemployment, those who were laid off or failed to get a job have turned to founding their own business to make a living. The majority of them choose to run a restaurant franchise that does not require professional skills, such as a fried chicken franchise. The number of food franchised stores has steadily increased in past years, accounting for 48.8 percent of the entire franchise market last year.
“Too many franchisors lack management capabilities, while the number of franchisees has increased significantly. Qualifications for operating a franchise firm need to be set higher, and stricter rules must be applied to the Franchise Business Act”, explained Young-hyun Lim, a management professor at Kwangwoon University.
Lina Jang (linajang@koreabizwire.com)
