Large fine on bakery chain

The antitrust agency yesterday slapped a big fine on the nation’s largest bakery franchise company for riding roughshod over its franchisees.

The move is proof that the government of Park Geung-hye will continue its promised crusade against big retailers like discount stores on behalf of staff, competitors or small or medium sized companies that do business with them in the name of “economic democratization.”

The Fair Trade Commission imposed a 572 million won ($511,940) fine on Paris Croissant for forcing its affiliated stores to expand or move recklessly, causing losses to the franchisees. Paris Croissant held a 78 percent share of the local bakery franchise market as of 2011. The company’s annual sales were 1.3 trillion won in that year. Its most famous brand is Paris Baguette, which has more than 3,100 stores across the country.

The FTC said the No. 1 bakery chain forced 30 stores to change interiors, expand or move their stores from July 2008 and April 2011. The owners of those stores allegedly had to comply with the demands or the headquarters threatened to not renew their contracts.

On average, the stores’ owners paid 111 million won to meet the demands of the company. Paris Croissant chose 25 interior design companies and furniture makers from August 2009 through October 2011, and made three-way contracts with them and the 30 stores to do the interior design work. The stores had to pay the headquarters for changing the interiors. In turn, the headquarters paid the interior design companies. But, the FTC said, the headquarters didn’t pay cash but paid in a kind of loan, and the interior design companies ended up paying commissions on the loans to banks.

“The FTC has been ordering corrective measures to companies in violation of the rule against unfair treatment by headquarters of their chain stores,” said Lee Dong-won, a director at the FTC. “The Paris Croissant case is the first to actually impose a fine, which is expected to warn other franchise companies who are engaged in similar practices.”

Paris Croissant said there are some misleading parts of the FTC’s statement.

“The FTC’s claim that we ‘forced’ the affiliated stores is misunderstood, because we recommended some old stores to upgrade their interiors in order to meet customers’ expectations,” said a spokesman at the company. “And it is normal that payments are made in loans in business-to-business transactions, although using them incurs some commission fees.”

The spokesman added that the company will respectfully follow the FTC’s decision and work harder to improve its practices with its stores and suppliers.

Last year, the company announced a set of rules for its transactions with franchisees, including providing up to 40 percent of the costs needed to improve the stores.

By Song Su-hyun [ssh@joongang.co.kr]