Seoul City Proposes 'Rationalization of Mandatory Purchase Items' to Coffee and Chicken Franchise Headquarters... 21 Companies Completed Improvements

Survey of 30 Medium to Large Franchise Headquarters Operating Over 40 Stores in Seoul
Many Franchise Headquarters Register Disposable and Commercial Goods Available in the Market as Essential Items

[Asia Economy Reporter Lim Cheol-young] The Seoul Metropolitan Government investigated whether the 'essential items' designated by 30 franchisors in the 'chicken' and 'coffee' sectors comply with the Franchise Business Act regulations. The investigation revealed that most franchisors designated items that are inexpensive and easily purchasable in the market as 'essential items.' Additionally, some franchisors forced purchases without clearly specifying or explaining the items in the disclosure documents.

On the 28th, Seoul conducted an investigation targeting 30 medium to large franchisors (registered in Seoul) in the coffee and chicken franchise sectors with more than 40 operating franchise stores in Seoul. The results showed that 29 franchisors included disposable products and general commercial goods that can be purchased in the market as 'essential items.' Seoul stated that the practice of receiving supplies at high prices from designated suppliers solely because they are 'essential items,' despite cheaper and more convenient options available externally, can directly reduce franchisees' profits. The purpose of this investigation is to create a healthy franchise ecosystem through rationalizing item designations.

Accordingly, Seoul proposed adjusting essential items, stating that general commercial goods are not essential for franchise distribution, quality control, or maintaining uniformity. Subsequently, 21 out of the 29 companies partially accepted this and completed measures such as excluding up to 89 items. Notably, one chicken franchisor excluded 'cooking oil,' which accounts for a large proportion of raw materials, from the essential items list. Items excluded from the 'essential items' list can be freely purchased by franchisees, preventing franchisors from using contract termination or other control measures solely because franchisees purchased them from the market.

Furthermore, Seoul requested corrections from nine franchisors who omitted or inadequately informed about 'essential items' in their disclosure documents, and the disclosure documents have been revised accordingly. Essential items must be listed in the disclosure documents according to the Enforcement Decree of the Act on the Fair Transactions in Franchise Business, and if important information is omitted, corrections can be requested.

Seoul plans to conduct a field survey by the end of this year targeting 500 franchise stores across five food service sectors to accurately understand unfair practices related to 'essential items.' After the survey, franchisors found to engage in unfair trade practices will be reported to the Fair Trade Commission for investigation, and improvement measures for identified issues will be promptly prepared. If necessary, Seoul will also propose amendments to relevant laws.

Ryu Dae-chang, Seoul’s Fair Economy Officer, said, “We will continuously monitor unfair practices such as excessive designation of essential items to protect the rights and interests of franchisees, most of whom are small business owners.”