Cheongnyeon Pizza operator fined for forcing zero delivery fees on franchisees

BSB Food, the franchisor behind the Cheongnyeon Pizza chain, has been sanctioned by the Korea Fair Trade Commission for forcing franchisees to charge consumers zero delivery fees and imposing excessive penalties.

The Fair Trade Commission said Wednesday it ordered BSB Food to cease the violations, notify affected parties, and delete or revise unfair contract clauses, and imposed a fine of 197 million won ($138,000) for breaching the Act on the Fairness of Franchise Transactions.

The probe found that BSB Food had included a special clause in franchise agreements from March 2021 requiring that all consumer-facing delivery fees — across all orders placed through delivery platforms and other channels — be set at zero. The clause remained in effect until January this year.

The company monitored franchisees' compliance with the policy and sent certified letters warning that those who failed to comply could face contract termination or renewal refusals.

The Fair Trade Commission found no reasonable justification for the zero delivery fee policy, noting it was inconsistent with the general industry practice of passing delivery costs on to consumers and offered no benefit to franchisees' revenue.

The investigation also found that BSB Food, which has operated its franchise business since 2018, levied excessive penalties on franchisees who terminated their contracts early or purchased ingredients and supplies from vendors not designated by the company — a practice known as "self-sourcing."

The penalty amount rose in stages: from 10 million won in 2018 to 20 million won in 2020 and 50 million won in 2021. Between July 2021 and November 2024, the company imposed penalties in 26 cases totaling 1.11 billion won.

Franchisees who did not pay after receiving a penalty notice were pressured through additional means, including supply cutoffs, demands to sign further special agreements, and civil lawsuits.

The commission found the penalty amounts far exceeded the company's actual business losses. The value of unauthorized purchases by franchisees ranged from 5,100 won to 114,000 won per case, yet the penalties imposed ranged from 3 million won to 20 million won — hundreds of times those amounts.

The commission also found that BSB Food signed franchise agreements with six prospective franchisees before the legally required 14-day cooling-off period following disclosure document delivery had elapsed.

The Fair Trade Commission said it would continue to monitor unfair trade practices to ensure franchisees can negotiate with franchisors on more equal footing.