Fair Trade Commission targets 'essential product abuse' in franchise sector, adds cosmetics to probe for first time

The Korea Fair Trade Commission will survey 200 franchise headquarters across 21 industries and 12,000 franchisees to assess conditions in the franchise sector. The probe will focus on whether trading practices involving essential products have taken root since a 2024 regulatory overhaul, and on compliance with mandatory contract disclosure requirements and pre-consultation obligations.

The Fair Trade Commission announced Monday it will carry out its "2026 Franchise Sector Survey" through Oct. 31.

The survey covers 21 industries, including food service, services and retail. The commission selected 20 industries based on franchisee counts and added the cosmetics sector for the first time, citing a recent surge in disputes over differential franchise fees and the industry's status as having the largest average differential franchise fee amounts.

The central focus of this year's survey is whether the essential product regime introduced in 2024 has become firmly established in practice.

Through legislative amendments at the time, the commission required franchise contracts to specify the types of essential products, the method for calculating their supply prices, and the procedures for negotiating changes to trading terms. It also made pre-consultation mandatory when a franchisor seeks to change essential product trading terms in ways unfavorable to franchisees.

The survey will examine franchise headquarters on franchise fee collection, mandatory contract disclosures and compliance with consultation obligations. Franchisees will be surveyed on essential product trading practices, franchise fee payment status and awareness of the essential product regime.

In addition, the commission plans to assess franchisees' sense of improvement in unfair practices, policy satisfaction, the operation of franchisee associations, payment methods for goods supplied and the handling of mobile gift certificates.

The commission also intends to examine whether its policy of encouraging franchisors to shift from differential franchise fees to royalty-based models — either fixed-amount or percentage-based — is being carried out in practice. Differential franchise fees refer to the portion of fees paid by franchisees for products and raw materials supplied by the franchisor that exceeds a reasonable wholesale price, effectively functioning as a retail distribution margin.

The commission has been promoting royalty-based models to improve price predictability for essential products. The survey will also review the degree to which the policy is being implemented and whether further regulatory improvements are needed.

The commission will analyze the survey results and release its findings in December. The results will serve as foundational data for planning ex officio investigations, reviewing the performance of the regulatory system and setting policy direction. The commission has conducted an annual written survey of the franchise sector every year since 2014.