[The Editors' Verdict] Faulty Franchise Business Portal

Average Sales of Convenience Store Franchises 7 Billion KRW
Some Franchise Headquarters Overestimated Due to Manual Entry Errors
Policy Trust Declines as Simple Manual Error Verification Was Not Conducted

The average sales revenue per franchise store by convenience store brand registered last year on the Fair Trade Commission’s Franchise Business Portal reached 7.04887 billion KRW. This is 11 times the average sales revenue of 621.79 million KRW per franchise store of CU, the top convenience store brand in South Korea by number of stores. The overall average was inflated due to one convenience store franchisor reporting an average sales revenue of 136.36586 billion KRW per franchise store.

The franchise store status information disclosed on the Fair Trade Commission’s Franchise Business Portal is based on data as of the end of 2022. The portal allows separate searches for the disclosure documents submitted by each franchisor. According to the disclosure document for that year from this convenience store brand, the average sales revenue per franchise store was 166.3 million KRW. This was a clerical error made during the franchisor’s registration of the convenience store’s disclosure document on the Fair Trade Commission’s franchise business transaction website.

The problem is that such errors are not isolated incidents. Comparing franchise disclosure documents shows that the franchise store status information for other convenience store brands under the same franchisor was not recorded at all. The franchisor Assa had the convenience store brand Assa Plus (with 3 franchise stores) registered four times redundantly.

Disclosure documents contain essential information that prospective franchisees must know, such as the franchisor’s financial status, franchise business sales, and any legal violations. According to the current Franchise Business Act, franchisors must apply for changes to their disclosure documents within 120 days after the end of the business year (by April 29, 2024), and individual business owners preparing financial statements must register within 180 days (by June 28, 2024). Violations can result in fines of up to 10 million KRW. For franchisors registered in Seoul, fines imposed for failure to register or late registration of disclosure documents have amounted to 465 million KRW over the past three years.

The Franchise Business Portal is introduced by the Fair Trade Commission as a comprehensive franchise information analysis system that processes big data from disclosure documents to allow comparisons by industry, franchisor, and brand. The portal helps prospective franchisees decide on franchisors by checking popular franchise industries or franchisors with increasing numbers of franchise stores, and aims to reduce the information gap between franchisors and franchisees.

However, franchise information on the portal has been distorted due to a lack of verification even for simple clerical errors. According to the Fair Trade Commission’s “2023 Franchise Business Status Statistics” released last month, the number of convenience store franchise stores as of 2022 was 55,043. This figure also differs significantly from the 53,827 convenience store franchise stores reported by Statistics Korea. The Fair Trade Commission’s statistics are based on disclosure documents submitted by each franchisor, whereas Statistics Korea supplements this data through nationwide business surveys, franchise surveys, and administrative data linkage for more accurate aggregation.

Since the Franchise Business Portal was introduced to prevent losses to small business owners who rushed into franchise store startups amid rumors of high profits from franchising, it must be properly verified and managed. Above all, incorrect statistics can undermine trust in government policies and must be corrected promptly.