Papa John's fined 1.5 billion KRW for 'forcing specific detergents': "Global common guideline"

Fair Trade Commission Issues Corrective Order to Korea Papa John's
"No Relation to Tax or Pizza Taste and Quality"
Franchise Headquarters: "Followed US Sanitation Association Guidelines"

Korea Papa John’s was fined approximately 1.48 billion KRW by the Fair Trade Commission for shifting remodeling costs onto franchisees and forcing them to purchase cleaning supplies. Korea Papa John’s stated, "This is merely a guideline applied uniformly to Papa John’s stores worldwide by the U.S. headquarters and does not constitute a legal violation."

On the 24th, the Fair Trade Commission announced that it would impose a fine of 1.482 billion KRW on Korea Papa John’s, along with corrective orders and an order to pay remodeling costs. This is the second-largest fine imposed for violations of the Franchise Business Act, following Genesis BBQ’s 1.76 billion KRW fine in June 2021.

According to the Fair Trade Commission, from August 2015 to April 2022, Korea Papa John’s demanded remodeling of 25 franchise stores and failed to pay the franchisees the legally mandated 20% share of the remodeling costs.

Additionally, from July 2015 to the present, Korea Papa John’s designated 15 types of cleaning supplies, including hand sanitizers, as mandatory items based on franchise contracts and other documents, and forced franchisees to purchase these exclusively from the franchisor.

Furthermore, during subsequent regular inspections, Korea Papa John’s issued warning letters if designated cleaning supplies were not used and operated a policy of suspending business operations if violations were repeatedly detected.

The Fair Trade Commission judged that the cleaning supplies could not be considered legitimate mandatory items because they are unrelated to the taste or quality of the pizza and are readily available on the market. According to the Franchise Business Act, mandatory items can only be designated if they are essential for franchise business management and necessary for trademark protection or maintaining uniformity.

Breaking down the fines by violation, the highest-ever fine of 1.044 billion KRW was imposed for the forced purchase of mandatory items. A fine of 438 million KRW was assigned for the shifting of remodeling costs.

In response, a Korea Papa John’s representative explained, "This is a guideline from the U.S. headquarters to comply with the U.S. National Sanitation Foundation’s guidelines," adding, "It is applied uniformly to Papa John’s stores worldwide." Korea Papa John’s is the domestic franchisor that holds a master franchise agreement with Papa John’s International, headquartered in the U.S.

The representative also emphasized that revenue from detergent sales is minimal. They added, "Since 2008, Korea Papa John’s has reduced royalties to ease the economic burden on franchisees by 16.7 billion KRW, while total revenue from detergent sales amounts to 547 million KRW, averaging about 60 million KRW annually."

Korea Papa John’s is expected to appeal the Fair Trade Commission’s decision. A company representative stated, "We explained that there was no illegal act or intent, but this was not reflected," and added, "We plan to review procedures and methods to clarify the headquarters’ position."