Franchisees report making less than expected

About a third of franchises in the Seoul metropolitan area have been earning less than what franchisers say their franchisees are making, according to a study released Tuesday by the Fair Trade Commission.

In a survey of 2,000 franchise owners conducted between July and October, 31 percent said their annual sales figures are lower than the average figure that franchisers have reported to the government. More than half, 58 percent, said their sales are about the same.

For chicken restaurants, 29 percent of owners said they saw lower sales than figures provided by headquarters, with as high as 47 percent of owners in one particular chicken chain saying they were making less.

Among restaurants serving Korean snacks like gimbap (rice rolls) and tteokbokki (rice cakes), 32 percent of owners said they were making less, with as much as 56 percent of owners at one particular chain saying this was the case.

The situation was similar among cafe owners, where 32 percent said they were making less than what franchisers were disclosing, with as many as 55 percent of owners in one coffee chain saying their sales did not reach the reported average.

The Fair Trade Commission threatened to ban companies from disclosing sales figures to local governments if additional investigations find they had been deliberately falsifying average sales data. Without the disclosures, franchisers will have more difficulty attracting franchisees.

In addition to disappointing sales, 20 percent of franchisees said they paid more on interior design than what franchisers reported, an average of 32 percent more according to the survey.

About a third of those respondents said they had to make additional payments in areas that were not mentioned on the contract, such as electricity and building water pipes.

About 56 percent of survey respondents considered the amount they have to pay for required items as excessively high compared to the market price.

The survey of franchise owners represents the first joint effort between the Fair Trade Commission and governments in the Seoul metropolitan area. Since taking office in June, the commission’s chairman, Kim Sang-jo, has been emphasizing greater collaboration with local governments in investigating unfair business practices.

The Fair Trade Commission said it hopes the survey will provide a more accurate assessment of Korea’s franchise landscape.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]