The franchise headquarters of the 'Ichadol', a brisket specialty franchise, has been penalized by the Fair Trade Commission for repeatedly forcing franchisees into unfair transactions.
The Fair Trade Commission announced on the 27th that it issued a corrective order to 'Darum Plus', the headquarters of Ichadol, on charges of violating the Franchise Business Act. Although it falls under the penalty surcharge, the surcharge was waived considering that a rehabilitation process is currently underway.
According to the Fair Trade Commission, Darum Plus forced franchisees to purchase ingredients for new menu items from 2019 to 2022 and repeatedly engaged in unfair transaction practices, such as providing false estimates of sales.
The company was found to have uniformly supplied ingredients for 11 new Ichadol menu items to all franchises, while not allowing returns.
The Fair Trade Commission determined that such actions constituted 'forced purchases' by shifting the business risks associated with the release of new menu items onto franchisees.
Additionally, issues were raised regarding the coercion of purchasing general consumer products, such as aluminum foil insulation bags, tteokbokki container sets, and utensil sets from the headquarters. Since these items cannot be viewed as 'essential items' necessary for maintaining food flavor or quality consistency, the Fair Trade Commission regarded this as an act that unfairly restrains trading partners.
Along with this, Darum Plus inserted a clause in the franchise contract starting in January 2019, stating that 'if essential items are purchased individually, three times the purchase amount will be charged as damages,' and included another clause indicating that 'if damage occurs due to the fault of franchisee staff, the franchisee must compensate the full amount.' The Fair Trade Commission also viewed this as an imposition of unjust compensation obligations on the franchisee.
Darum Plus revealed that it inflated the estimated sales figures provided to 251 franchise hopefuls in 2019.
The provided sales estimates were computed based on the average sales of nationally operated stores for more than six months from the previous year, regardless of regional characteristics. For instance, an estimated sales level of '5 million to 8 million won per year per 1 square meter of exclusive area' was provided for planned store locations in both the populous Gangnam area of Seoul and Chuncheon in Gangwon Province, where there are considerable differences in flowing population.
The Fair Trade Commission stated, 'This is expected to encourage franchisees to make decisions regarding business initiation based on reasonable estimated sales information and to reduce the burden of selling and stock, essential item purchases, and the risks of unfair compensation for franchisees.'