Caffe Bene fined for violating law

Caffe Bene, the nation’s largest coffee chain, will be fined 1.9 billion won ($1.83 million) for passing costs on to its franchisees, which violates the franchise business law.

The Fair Trade Commission (FTC), Korea’s antitrust agency, said yesterday it will impose the biggest possible fine on the coffee chain, which is worth 176.2 billion won.

The company signed a partnership with KT, the second-largest mobile carrier in Korea, in August 2010 to offer 10 percent discounts to KT subscribers. The two companies agreed to split the total costs equally.

But when Caffe Bene’s headquarters asked its franchisees to take on the losses, 40 percent of the 173 franchisees refused.

Despite the disagreement, the company forced them to start the promotions in November 2010 and passed the costs on to them.

The coffee chain currently has 580 franchisees across the nation.

The FTC said the company violated a provision in its franchise contract that stipulates the company and franchisee will equally share costs for marketing and promotion.

It is also a violation of the franchise business law.

“The franchise is taking advantage of its power over franchisees,” the agency said in a statement.

The trade commission also found that Caffe Bene required its franchisees to redesign their interiors or to purchase what it called “necessary equipment” from headquarters or a designated third-party company.

The company forced the franchisees to purchase some items that are listed as optional in the contract.

The headquarters’ sales rose about 56 percent during the period between November 2008 and April 2012, largely due to interior remodeling and equipment sales, according to the agency.

“The latest fine shows the FTC’s determination to punish large franchisors strictly,” an FTC official said.

BY SONG SU-HYUN [ssh@joongang.co.kr]