Fair Trade Commission Launches 2026 Franchise Sector Survey... Focus on Margin Franchise Fees and Mandatory Items

Survey on the Implementation of Franchise Agreements

Assessing Improvements in Mandatory Item Trading Practices

The Fair Trade Commission is targeting unfair practices concerning "margin franchise fees (distribution margins)" and "mandatory items," which are cited as the biggest causes of conflict between franchise headquarters and franchisees. While the number of headquarters and brands has surged recently, driving quantitative growth in the franchise market, disputes over distribution margins have continued. In response, the Commission has decided to include the cosmetics sector—which records the highest margin franchise fee—as a new target for investigation, launching an in-depth examination.

Average Margin Franchise Fee Reaches 60 Million Won... Cosmetics Industry Now Under Scrutiny

On July 27, the Fair Trade Commission announced that it will officially begin the "2026 Franchise Sector Written Survey," covering 200 franchise headquarters and 12,000 franchisees across 21 industries from July 27 until October 31, 2026.

The key point of this year's investigation is the addition of the "cosmetics" industry, which stands out for its uniquely high margin franchise fees. Margin franchise fees refer to the excess amount paid by franchisees above the standard wholesale price for goods or raw materials supplied by headquarters—essentially a type of distribution margin. According to the Fair Trade Commission’s disclosure statement (as of the end of 2024), the average margin franchise fee in the cosmetics sector is 60 million won, significantly higher than other representative food service and retail industries such as chicken (41 million won), bakery (30 million won), and coffee (26 million won).

To protect franchisees against undisclosed distribution margins, the Fair Trade Commission has been encouraging a shift from margin-based systems toward royalty-based fee models with fixed or percentage rates. Through this year's survey, the Commission plans to evaluate whether the royalty model is being properly adopted on the ground and will pursue further institutional reforms based on its findings.

Spotlight on Implementation of the "2024 Mandatory Items Amendment"

Another focus of this investigation is whether the "Mandatory Items System Improvements," implemented in 2024, are operating as intended in the field. With the 2024 legal amendment, the Fair Trade Commission made it mandatory to specify in franchise agreements: ▲ types of mandatory items, ▲ supply price determination methods, and ▲ procedures for negotiating changes to transaction conditions. The amendment also requires pre-consultation if franchise headquarters intend to change trading conditions unfavorably for franchisees. This year’s investigation will examine whether headquarters are complying with obligations such as recording franchise fee collection details and adhering to the agreed negotiation process in contracts, while also surveying franchisees to thoroughly assess trading practices regarding mandatory items and awareness of the system. In addition, the investigation will review on-the-ground business practices, including the handling of mobile gift certificates, payment methods for goods supplies, and the actual operation of franchisee organizations.

The driving force behind this unprecedentedly rigorous investigation is the deepening conflict between headquarters and franchisees that has emerged alongside the quantitative expansion of the franchise market. According to the "2025 Franchise Business Statistics" from the Fair Trade Commission, the total number of franchise headquarters (9,960, ▲13.2%), brands (13,725, ▲10.9%), and franchise outlets (379,739, ▲4.0%) all showed significant year-on-year increases, demonstrating continued external growth. However, ongoing transparency issues over margin franchise fees and controversy over compulsory sales of mandatory items mean that unfair practices are still widely felt among those working in the sector.

The Commission plans to complete headquarters investigations by August 7 and continue the franchisee survey through the end of October, with results to be announced in December 2026. The outcomes will serve as critical foundational data for formulating plans for ex officio investigations into unfair practices and for future legal amendments.

The Commission stated, "These survey results are foundational for incorporating field opinions into policy, so we ask for the active participation of franchise headquarters and franchise business owners."

This content was produced with the assistance of AI translation services.