PB Sales Forced, Franchisees Threatened with Termination... Davichi Optical Fined 1.48 Billion Won for Abusing Franchisees

Three-Step Pressure If Sales Quotas Are Not Met
Advertising Costs Shifted Without Prior Franchisee Consent

Davichi Optical Chain Co., Ltd., the largest eyewear franchise in South Korea, has been sanctioned by the Fair Trade Commission for forcing franchisees to meet internal brand (private brand, PB) sales quotas and for unfairly shifting interior renovation and advertising costs onto franchisees. This is the first time that sanctions have been imposed for a franchisor forcing specific product sales targets on franchisees since the enactment of the Franchise Business Act.

"Sell PB or Leave"... 'Sales Ratio' Used as Grounds for Contract Termination

Davichi Eyewear. The Asia Business Daily DB.

On the 17th, the Fair Trade Commission announced it had decided to impose corrective orders (prohibition of conduct, notification, and payment orders) and a fine of 1.477 billion won on Davichi Optical Chain for forcing sales targets, failing to cover store environment improvement costs, and violating the obligation to obtain prior consent for advertising and promotional activities.

According to the Fair Trade Commission's investigation, in October 2022, Davichi Optical Chain introduced a 'Comprehensive Score'—a metric used to manage franchise stores—and set specific sales ratio targets for eight sub-categories, making them mandatory for franchisees. The targeted products included strategic brand frames priced at 100,000 won or more, progressive functional lenses, and other PB and strategic products through which headquarters could directly claim differential franchise fees or sales incentives. As a result, franchisees were compelled to artificially recommend and sell PB products to meet the company-determined ratios, regardless of customers' free choice.

Headquarters' pressure for compliance was severe. Every month, Davichi Optical Chain reviewed whether sales targets had been met; missing the target once required attendance at a workshop, missing twice in a row required submission of a 'rehabilitation plan,' and failing to meet targets three times in a row led to a notice to appear before the Franchise Termination Committee and receipt of an official document notifying the franchisee that they were subject to contract termination.

The Fair Trade Commission determined that, even if not an absolute sales volume or quantity, imposing and enforcing a specific 'sales ratio' for certain products constitutes unfair enforcement of sales targets, which is prohibited under the Franchise Business Act.

Pushing CI Replacement Cost of 500 Million Won... 739 Advertising Fees Shifted with Only 6% Approval

A large number of "gapjil" (bullying by those in a position of power) cases were also found where headquarters transferred the costs of store environment improvement and marketing campaigns to franchisees. Davichi Optical Chain encouraged or required 15 franchisees to carry out store zoning renovations but failed to meet the legally mandated 20% cost-sharing ratio by excluding supervisory fees from construction costs. In addition, after introducing a new CI (Corporate Identity), the company pushed 193 franchisees nationwide to replace their store facades but failed to pay any of the required 20% legal cost contributions. As a result, the unpaid statutory contribution by headquarters amounted to approximately 502 million won.

Furthermore, from July 2022 to October 2024, Davichi Optical Chain executed 652 ads and 87 promotional events without securing the required prior consent from franchisees (over 50% for ads and over 70% for promotions). Instead, the company passed costs to all stores with consent from only 18 representative committee members (the Sansung Committee)—just 6.2% of all franchisees. However, the Fair Trade Commission determined that these representatives did not have the authority to decide on behalf of all franchise operators on burden-sharing for advertising and promotional expenses.

The Fair Trade Commission stated, "This case is significant as it marks the first time sanctions have been imposed for forcing sales targets, which violate the Franchise Business Act." It added, "We will continue to closely monitor and actively rectify unfair practices whereby franchisors deprive franchisees of their business management freedom or unjustly shift costs for their own gain."

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