The Korea Fair Trade Commission (KFTC) has taken regulatory action against Sinjeon Foodsys, the operator of the Sinjeon Tteokbokki franchise, for compelling franchisees to purchase general commercial goods not listed as mandatory in official disclosure documents. This enforcement aims to protect franchisees from unfair business practices and promote transparency in franchise operations. The KFTC found that Sinjeon Foodsys required franchisees to buy 15 types of general goods, such as chopsticks and packaging, exclusively from the franchisor or regional headquarters. These items were not essential to brand identity or product quality, and their forced purchase was not disclosed to franchisees in advance.
Franchisees across seven regions in South Korea, excluding Daegu, were affected by these practices. Sinjeon Foodsys sent certified notices to 59 franchisees a total of 70 times between March 2021 and June 2023, threatening contract termination and damages for non-compliance. From March 2023, regional headquarters were instructed to monitor and report on franchisees’ external purchases using a checklist system. The company earned at least 630 million KRW in unfair profits by selling these goods at a margin of 12.5% to 34.7%, with total sales reaching approximately 6.46 billion KRW.
Initially, Sinjeon Foodsys did not list these items as mandatory purchases in its disclosure documents. In September 2023, the company updated its documents to designate these goods as mandatory, but reverted them to recommended items in December 2023 after the KFTC began its investigation. The KFTC determined that these actions constituted an unfair restriction of trading partners under Article 12 of the Franchise Business Act, leading to a corrective order and a fine of 967 million KRW. The case highlights the importance of clear and accurate disclosure of purchasing requirements in franchise agreements.
Frequently asked questions include: What goods were franchisees forced to buy? Franchisees were compelled to purchase general commercial items such as utensils and packaging materials, which were not essential to the brand. Why did the KFTC intervene? The KFTC acted because Sinjeon Foodsys did not disclose these mandatory purchases and unfairly restricted franchisees’ ability to choose suppliers, resulting in significant financial gains for the franchisor. What is the expected impact? The decision is expected to improve transparency and protect franchisee rights in the Korean franchise sector.
The KFTC’s action against Sinjeon Foodsys demonstrates a strong commitment to protecting franchisee rights and ensuring fair business practices. By penalizing the forced purchase of non-essential goods that were not disclosed as mandatory, the regulator is promoting greater transparency in franchise agreements. This case highlights the importance of clear communication and documentation between franchisors and franchisees. The decision is likely to have a positive impact on the franchise sector by encouraging more ethical and transparent business conduct.