[비즈한국] Kyochon F&B339770, the operator of Kyochon Chicken, has recently been sued at the Korea Fair Trade Commission (KFTC) by the local entity with which it signed a master franchise agreement in Canada. The firm alleges that Kyochon F&B abused its superior bargaining position by forcing them to sign the master franchise agreement with its US subsidiary instead of the headquarters, demanding unreasonable investments during the opening of the first Canadian store, and blocking the expansion of additional franchise locations. In response, Kyochon F&B argues that the US subsidiary is a legally qualified contracting party and that they rejected the Canadian firm's requests because they failed to adhere to Kyochon Chicken's standard store opening guidelines.
According to Bizhankook’s reporting, Mirae F&B Holdings, which signed the Canadian master franchise agreement with Kyochon F&B’s US subsidiary, filed a complaint with the KFTC on the 26th against both Kyochon F&B and its US subsidiary (Kyochon USA Inc.). The complaint asserts that the companies unfairly abused their bargaining position before and after the signing of the master franchise contract.
A master franchise (MF) is a method where a franchisor grants the rights to operate a franchise business in a specific country or region to a local business entity. Unlike direct overseas operations, this model avoids the need for investments in store openings or labor costs associated with hiring local staff. Franchisors can expand into overseas markets rapidly while minimizing trial and error related to local laws, culture, and business environments.
Kyochon F&B’s US subsidiary signed the master franchise agreement with Mirae F&B in February 2023. The agreement primarily granted Mirae F&B the right to directly or indirectly operate Kyochon Chicken restaurants in Canada and to conduct franchise business in the country. Both parties agreed to increase the number of stores, starting with the first Canadian location in the first year and reaching 30 stores by the fifth year. Following the agreement, Mirae F&B opened the 'Kyochon Chicken Canada Store No. 1' on Robson Street in Vancouver, Canada, in July last year.
Currently, Mirae F&B is raising issues with the fact that the party to the master franchise agreement was not the Korean headquarters, but the US subsidiary. Kyochon F&B’s US subsidiary is a company 96.37% owned by Kyochon F&B and 3.63% owned by K&P Food, a wholly-owned subsidiary of Kyochon F&B. Last year, the US subsidiary reported an operating loss of 2.7 billion KRW, marking four consecutive years of operating deficits. The company's capital as of last year was around 2.8 billion KRW.
A representative from Mirae F&B stated, "After long discussions about signing the master franchise agreement with Kyochon F&B and agreeing on specific terms, Kyochon F&B unilaterally notified us just before signing the written contract that we had to sign with their US subsidiary." They added, "We expressed concern over the company's financial status and requested to sign with the headquarters, but they adamantly persuaded us, claiming we could rest easy since it was a 100% subsidiary of the headquarters, so we were effectively coerced into signing the master contract with the US subsidiary."
In response, Kyochon F&B countered, "The US subsidiary is a 100% subsidiary of Kyochon F&B and meets the requirements to sign a master franchise agreement. Kyochon F&B has internally contracted with its US subsidiary to allow the use of rights such as franchise business rights in the Americas, trademarks, designs, and patents."
Mirae F&B also alleges that there were unreasonable demands during the opening of the first Canadian store and the subsequent franchise expansion process. The number of Kyochon Chicken stores in Canada has not increased since the opening of the first branch in July last year. A representative from Mirae F&B claimed, "After interior construction for the first store in Canada began, Kyochon F&B demanded that we change the entire interior structure, forcing unreasonable capital investment and significantly increasing construction costs. Afterward, when we prepared offices and warehouses to request the start of franchise operations, Kyochon F&B prohibited us from starting, claiming that the chairman/founder would not permit it."
Kyochon F&B refuted this, stating, "At the time of the first store's opening, we continuously notified them to adhere to our interior manuals. However, Mirae F&B insisted on reusing equipment and materials from a pizza brand they previously operated, and we stated our policy of refusal and requested improvements. Because both parties held regular video conferences regarding the interior, the claim of 'sudden demands for structural changes' is a false statement." They added, "We also refused to approve additional potential store sites because they were far outside our standard guidelines and the common sense of the franchise industry."
A Kyochon F&B official added, "Mirae F&B opened the first Canadian store in July last year, but after paying royalties for only the first two months, they have not paid royalties for the past 11 months. The accumulated unpaid amount now reaches tens of millions of won." They continued, "We sent several Default Letters notifying them that such actions were grounds for contract termination, but received no response. Consequently, we notified Mirae F&B of the final contract termination. Despite the contract being terminated, Mirae F&B is currently operating stores in Canada in violation of local laws. This is a clear illegal act."
A Mirae F&B representative said, "The Canadian store closed on the 30th of last month due to a forceful execution by lawyers. We are currently facing a loss of about 2 billion KRW and are in a situation where we have to withdraw from a business invested in by Korean SMEs and Korean expats." They added, "We tried to resolve the outstanding royalty payment of about 22,000 dollars, but we haven't even been able to talk due to the headquarters' coercive attitude."