Franchise Headquarters Under Fire for Power Abuse... Intense Criticism from Ruling and Opposition Lawmakers

Controversy Over Excessive Fees Targeting Franchisees Including Burger King

At the National Assembly's Public Administration and Security Committee hearing on the Fair Trade Commission held on the 16th, ruling and opposition party lawmakers continued to sharply criticize distribution companies accused of abusing their power over franchise stores.

Han Ki-jung, Chairman of the Fair Trade Commission (left in the photo), is responding to a lawmaker's question at the National Assembly's Political Affairs Committee audit held on the 16th. Photo by Kim Hyun-min kimhyun81@

Min Byeong-deok, a member of the Democratic Party of Korea, pointed out that the fees charged by franchise headquarters from franchise stores related to mobile gift certificates are excessive. Min said, "The commission rate for mobile gift certificates is usually between 5 to 11%, which suffocates franchise owners," adding, "However, due to lack of bargaining power, they cannot even protest to the headquarters." He raised his voice, saying, "After selling goods with mobile gift certificates, the money is only received after 45 to 60 days. How can they run their business under such conditions?"

In response, Han Ki-jung, chairman of the Fair Trade Commission, said, "Regarding mobile gift certificates, it is understood that each company's promotional events require obtaining consent from more than 70% of franchise owners and are being made mandatory."

Concerns were also raised about the importance of the Fair Trade Commission's monitoring role as franchise companies acquired by private equity funds continue to engage in power abuse every year.

Yoon Young-duk, a Democratic Party lawmaker, said, "The food service franchise business has good cash-generating ability and can increase profits through price hikes or expansion of essential supplies from franchise stores, which seems to attract private equity funds," adding, "Private equity funds often focus on short-term management goals and treat franchise stores merely as means to achieve targets, frequently engaging in power abuse or excessive profiteering."

Yoon also said, "Burger King continuously raises the prices of raw materials and uses franchise fees higher than those in the U.S. Burger King franchise fee policy to extract excessive profits, squeezing franchise owners, resulting in the corporate value growing to nearly 1 trillion won," and asked, "Has the Fair Trade Commission ever conducted a comprehensive investigation or assessment regarding private equity fund acquisitions of franchise headquarters?"

In response, Chairman Han said, "The issue of acquisitions by private equity funds itself is not directly related to the Fair Trade Commission or the Fair Trade Act," but added, "We will actively monitor that area and consider ways to move toward coexistence."

Moon Jang-heon, chairman of the Burger King Franchise Owners Association, who appeared as a reference witness that day, appealed, "While the global company Burger King takes 8.5% in royalties and advertising fees in the U.S., in Korea, it takes 17.8% including logistics margin and delivery fees," adding, "The more franchise stores make and sell hamburgers, the more they operate at a loss."

Meanwhile, Lee Dong-hyung, CEO of BKRL (Burger King), who was scheduled to appear as a witness at the hearing, was absent due to COVID-19 infection, and Lee Ki-young, CEO of Tteokcham, was absent due to an overseas business trip. Min said, "Tteokcham is a typical power-abusing company that blocks exit routes by imposing penalties even though 280 franchise stores closed within one year of opening," adding, "The headquarters CEO notified that he would be abroad from the 13th to Taiwan and Vietnam and would not return until the 30th, which is a malicious act of deceiving and insulting the National Assembly."