Domino's Pizza Fined 700 Million Won for Shifting Franchise Interior Costs

[Asia Economy Sejong=Reporter Dongwoo Lee] Cheong ODPK, the domestic franchisee of Domino's Pizza, has been sanctioned by the Fair Trade Commission for failing to pay the legally mandated interior construction cost contributions to franchise stores.

On the 17th, the Fair Trade Commission announced that it decided to impose corrective orders including a payment order of 1.528 billion KRW and a fine of 700 million KRW on Cheong ODPK for violating the Franchise Business Act by not paying the legally mandated store environment improvement contributions to 70 franchise stores. Cheong ODPK is the domestic franchise headquarters of Domino's Pizza, holding all rights related to domestic franchise operations under an international franchise agreement with Domino's Pizza USA.

According to the Fair Trade Commission, from October 2014 to July last year, Cheong ODPK encouraged or demanded 70 franchisees to improve their store environments by carrying out construction. This was in line with Domino's Pizza USA headquarters' global initiative to introduce the 'theater' model, designed so that customers visiting the store can watch the pizza-making process, prompting domestic stores to proceed with interior renovations accordingly.

Cheong ODPK frequently checked the progress of store environment improvements and requested implementation plans, as well as demanded written commitments to carry out the improvements. Under the Franchise Business Act, the franchisor must bear 20% of the store environment improvement construction costs (40% if expansion or relocation is involved). Exceptions apply only if the improvements are voluntarily made without franchisor encouragement or demand, or if unavoidable hygiene or safety construction is required due to the franchisee's fault.

It was found that Cheong ODPK did not pay the legally mandated contribution of 1.528 billion KRW to franchisees out of the total construction cost of 5.138 billion KRW. To make it appear that the interior renovations were voluntary on the part of the franchisees, they even formally obtained store environment improvement request forms. The Fair Trade Commission stated, "This measure is expected to raise awareness against the unfair trade practice where franchisors require franchisees to improve store environments but do not share the costs, and to help reduce unnecessary store environment improvement demands by franchisors."