95% of Incheon Franchise Owners Forced to Purchase Mandatory Items from Franchisors: "Profitability Worsening"

84% Say "Prices Are Higher Than Market Rates"
Calls for System Improvements Such as "Transparency in Price Calculation Methods"

It has been found that the majority of franchise business owners in the Incheon area have experienced being forced to purchase mandatory items from their franchisors.

According to the "Survey on Forced Purchase of Mandatory Items in Franchise Business Transactions" released on January 9 by the Incheon Credit Guarantee Foundation's Incheon Small Business Support Center, a survey conducted in August last year targeting 300 franchise owners in major food service sectors such as chicken, coffee, and pizza (including hamburger) revealed that 95.3% of respondents had experienced being forced to purchase mandatory items.

It was also found that 69% of franchise owners responded that "mandatory items account for more than 60% of all items," and 91.3% of these mandatory items were confirmed to be available for purchase on the open market.

Furthermore, 66% of franchise owners answered that "profitability has deteriorated due to items they were forced to purchase from the franchisor," and 84% responded that "the prices are high."

Survey Results on Strong Product Items Purchased in Franchise Business. Provided by Incheon City

Only 37.7% responded that "negotiations are conducted when mandatory items are changed to the disadvantage of franchisees," and just 16% answered that "franchisee opinions are reflected after negotiations," indicating that the intentions of franchise business owners are not sufficiently reflected in the franchisor's unilateral decisions to change item lists.

As for suggestions to improve the system, franchise business owners most frequently cited the need to make the price calculation method for franchise transactions more transparent (mandatory disclosure). In addition, they proposed that when changes disadvantage franchisees, the process should shift from "negotiation" to "agreement," and that forced purchase of items should be designated as a distinct type of unfair trade practice.

Yoo Ji-won, Director of the Incheon Small Business Support Center, stated, "These survey results clearly show the difficulties franchise business owners face on the ground," adding, "We will actively call for policy support and institutional improvements to rectify unfair trade practices and promote mutual growth between franchisors and franchisees."