Curb on overpopulation of bakery franchises

The Fair Trade Commission is set to take measures to stop big-name bakery franchises from opening too many stores in one district.

In an attempt to protect the sales of pre-existing bakeries, the commission said yesterday that it will forbid the same franchise from opening another store within a 500 meter radius.

The headquarters will also have to provide financial support of up to 40 percent of the total cost when it requests that its stores make renovations. Furthermore, it cannot order them to change their interiors within five years of the store opening, according to the FTC.

“More and more lay people have started to run their own businesses by joining major franchises as of late,” said Lee Dong-won of the FTC’s franchise and retail division. “As such, more conflicts are arising between store owners and headquarters, and it has become necessary to introduce common guidelines for new openings of franchise stores.”

The number of franchise stores reported to Korea’s antitrust watchdog jumped to 170,926 in 2011 from 107,354 in 2008. Among them, the number of stores licensed by SPC group, widely-known for its bakery brand Paris Baguette, almost doubled to 3,095 last year from 1,568 in 2007.

The number of such cases mediated by the FTC also jumped to 733 last year from 291 in 2008.

Most of the conflicts revolved around threats of contracts with branches not being renewed unless they made very specific renovations.

“Store owners are really finding themselves in a tight spot,” said Lee. “They can’t avoid doing the renovations because they have already invested in their stores and they want to renew the contract. But at the same time, many cannot afford what the headquarters is asking.”

Around 12 percent of franchise bakery stores shut down each year. Fourteen of the 23 that did so last year said they had been forced to renovate.

From now on, the headquarters of such franchises will have to report to the FTC showing that they have observed its guidelines, the agency said. Those guilty of violations can be fined up to 150 million won ($133,000), it added.

The commission met with representatives from Paris Baguette and Tous Les Jours and the CEOs of 12 food companies almost a dozen times before drawing up the guidelines to ensure they were fair, it said. Similar rules for Pizza Hut Korea, takeaway chicken franchise Kyochon F&B and similar groups are expected to be drawn up in the first half of this year.

By Lee Sun-min [summerlee@joongang.co.kr]