I believe the headquarters of Mom's Touch and franchise owners can coexist and grow together. Since KL&Partners, a private equity fund, acquired the company in 2019, operating profit has trended upward while the closure rate has remained below the industry average. We will not make policy decisions that squeeze franchise owners for excessively large operating profits.
Kang Han-seong, head of Mom's Touch strategy support, said this in an interview with ChosunBiz at the Mom's Touch headquarters in Jung District, Seoul, on the 17th. Kang said, "When people hear that a private equity fund is the largest shareholder, they may think it will boost operating profit in the short term to sell for an exit. But Mom's Touch is taking a different path," adding, "I believe the role of a private equity fund is to work to maintain a good brand with integrity. We are proceeding carefully with various decisions to secure operating profit while reducing the burden on franchise owners."
In fact, when avian influenza (AI) broke out in Brazil this year and global chicken prices surged, Mom's Touch decided that the headquarters would shoulder the entire 6.6 billion won increase in chicken costs through the end of the year. It is rare for a franchise headquarters to absorb the full surge in materials and supplies costs.
Kang plays a key role in listening to various opinions of Mom's Touch franchise owners and setting a path for coexistence based on the headquarters' business plans. After serving as legal team leader at Pulmuone Foodmerce and as head of the compliance support team at Pulmuone NSO, Kang joined Mom's Touch in 2022. After serving as legal team leader and senior head of external relations, Kang has been head of strategy support since Dec. last year. The following is a Q&A.
—The 6.6 billion won increase in chicken costs amounts to 9% of last year's operating profit. Was there any opposition during the process of deciding that the headquarters would bear the full amount?
"When the Brazil AI situation disrupted the chicken supply, an emergency executive meeting was convened. The mood was, 'Let's quickly meet with franchise owners and reasonably discuss a sharing plan.' After that, we held several meetings with owners to discuss the ratio of sharing between headquarters and franchises. But upon reviewing it from multiple angles, it seemed we could reduce owners' burden if we procured chicken from other regions such as Thailand and the headquarters took on more of the cost. When we disclosed the management's decision to have the headquarters bear the full price increase at the franchise owners' council, the owners present applauded. That scene is still vivid."
—Since last year, franchise owners of several brands have been filing so-called "spread franchise fee lawsuits" against headquarters. Mom's Touch won the second trial in the unjust enrichment return lawsuit that began in 2021. What was the key?
"Most franchises follow the Fair Trade Commission's standard contract. It is common for this contract to lack specific details on spread franchise fees. Mom's Touch is the same. However, Mom's Touch differs from other franchises in that the headquarters and owners consult on the supply prices of materials and supplies and consumer prices. I understand that most franchises have brief talks with a portion of owners and effectively end the process at the level of notification. In that case, it leaves the other thousands of owners without agreements in place.
There was a time in the past when Mom's Touch did not fully appreciate the importance of consultation. Some owners raised issues, we improved the process, and built a systematic consultation structure. In litigation, this leaves little room for owners to claim they 'did not know the headquarters was taking an unfair margin (profit).' In a sense, owners taught the company the importance of consultation. A law firm that currently represents many franchise owners in lawsuits joined as counsel for the owners in Mom's Touch's appeal as well, but did not participate in the Supreme Court appeal. I believe this proves that Mom's Touch is different from other franchises."
—You have been operating a "coexistence suggestion box" since Mar. to strengthen communication with owners. What kinds of suggestions have been submitted?
"The coexistence suggestion box began at the proposal of the CEO, who said, 'It seems good to create a channel for communicating with owners.' If owners share problems only among themselves, conflicts may not be resolved and could even intensify, so we thought this kind of system was necessary. We created the suggestion box with the intent of listening to all suggestions without weighing their importance.
We receive various suggestions, such as requests regarding the timing of consumer price increases and asking us to inform owners of headquarters policies in advance to build consensus. So far, we have resolved 80% of the submitted items, and we are working to process the remaining suggestions quickly. Mom's Touch holds owner meetings about twice a month, and we share the handling process for inquiries, including questions submitted to the coexistence suggestion box, at these meetings. I understand that materials disclosed at the council are shared with all owners."
—If you respect the opinions of owners, there may be cases where this conflicts with the consumer perspective.
"That's always a difficult area. Because Mom's Touch is a value-for-money brand, we cannot raise consumer prices recklessly. If consumer prices are raised excessively, the brand identity will become muddled. However, since the prices of materials and supplies keep rising, owners inevitably want higher consumer prices. I think this is the biggest point of conflict of interest.
To coordinate this, Mom's Touch raises the ingredient settlement price and consumer prices around the same time. When rising materials and supplies costs make it time to raise the settlement price, we raise the consumer price simultaneously to reduce owners' burden. To balance at a reasonable level, both headquarters and owners need to set aside excessive greed. The important point is that the headquarters does not take all the margin from the consumer price increase. If prices rise without limit, consumers will have no choice but to give up on Mom's Touch, so I think these processes and procedures are important."
—If you define "coexistence" in a single phrase, what would it be?
"I think it is 'a protective heart.' If the headquarters does not protect franchise owners, sustainable store operations are impossible. Conversely, if owners do not protect the headquarters, sustainable management is difficult for the headquarters as well. It is regrettable that legal disputes with some franchise owners continue. However, I believe the declining number of participating franchise owners reflects their trust in the headquarters' will to improve the relationship into one without conflict. Submitting a notice of withdrawal is an act of trying to protect each other. Without such a spirit, calls for coexistence and joint growth are just a shell."