South Korea: Pizza Hut Korea fined for exploiting franchisees

Pizza Hut Korea has been fined 526 million won for compelling store owners to pay unlawful franchise fees totaling 6.8 billion won over a decade, the nation’s antitrust watchdog said Tuesday.

The Korean branch of the US pizza chain has illegally collected a franchise fee called an “administrations fee” since 2003 for providing administrative support, including purchase, marketing, sales and quality control, according to the Fair Trade Commission.

The FTC said the head office did not include the administrations fee in contracts with store operators until May 2012, only mentioning 6 percent of sales for royalties and 5 percent of sales for advertising.

“The company in 2012 began to unilaterally notify store operators about the fee without any prior consultation or agreement procedure with new store owners and those who renewed their contracts,” the FTC said in a press release. “It raised the fee from 0.55 percent of sales to 0.8 percent of sales at that time as well, even though the stores were facing continuous decreases in their sales.”

The FTC also pointed out that Pizza Hut directly received 62 million won in franchise fees as an educational budget from 29 store owners between March 2013 and April 2015. The current law orders franchises to deposit their educational budget, rather than receive it directly.

“The recent measure is meaningful as both business franchises and store owners are in difficult situations these days amid harsh competition among restaurants and weakening consumer sentiment,” the FTC said. “Franchises will be reluctant to earn illegal gains from store owners after this measure.”

Full Content: Korea Times

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