Davichi Optical fined W1.48b for forcing franchisees to hit sales targets

Davichi Optical Chain has been sanctioned by the Korea Fair Trade Commission for setting mandatory sales-ratio targets for specific products and forcing its franchisees to meet them.

The Fair Trade Commission also found that the company failed to pay its legally required share of store-renovation costs and ran advertising and promotional campaigns that franchisees had to help fund without obtaining proper prior consent.

The Fair Trade Commission said Monday it had issued a corrective order and a fine of 1.48 billion won ($1.04 million) against Davichi Optical Chain — the franchisor behind the Davichi Optical brand — for forcing sales targets on franchisees, failing to cover its share of store-improvement costs, and running advertising and promotional events without the required prior consent. The corrective order includes directives to prevent recurrence, notification orders and payment orders.

According to the commission, Davichi Optical Chain began around October 2022 using eight sub-indicators within a franchisee-management tool called the "comprehensive score" to set target sales ratios for specific products, including its own private-brand and designated strategic-brand items.

The targeted products included strategic-brand eyeglass frames priced at 100,000 won or more, progressive functional lenses, home-use products, single-vision private-brand items and certain contact lenses — all products from which Davichi Optical Chain earned sales incentives or differential franchise fees.

The company checked each month whether franchisees had met their targets and applied escalating penalties to those that fell short. A first miss required attendance at a workshop; two consecutive misses triggered a demand to submit a business-revival plan; and three consecutive misses resulted in notification that the franchisee was subject to contract termination, along with a summons to appear before a franchise-termination committee.

The commission determined that these sales targets restricted franchisees' freedom to decide which products to sell. Because a franchisee's sales ratio for a given product could fall below the target through customer choice alone, franchisees were effectively compelled to push those products harder to make up the shortfall.

Particularly notable was that the products subject to sales targets were tied to items from which Davichi Optical Chain derived financial benefits, including sales incentives and differential franchise fees.

The commission also found no objective basis for the company's implicit position that enforcing sales targets was necessary to protect trademark rights or maintain product and service uniformity, and the specific targets were not disclosed in the franchise information document or the franchise agreement.

The commission additionally found that Davichi Optical Chain had failed to pay its proper share of store-improvement costs. From around 2022, the company encouraged or required franchisees whose initial franchise contracts were at least 10 years old to renovate their stores into a clearly zoned layout — a format the company called a "zoning" environment.

Fifteen franchisees carried out the renovations, but Davichi Optical Chain excluded supervision fees from the costs it was required to share, leaving it short of the legally mandated 20 percent contribution.

The company also declined to cover signage-replacement costs tied to the rollout of a new corporate identity. Around December 2023, Davichi Optical Chain notified all franchisees nationwide of a "facade renovation campaign" to replace existing signs with ones bearing the new corporate identity, and it tracked each franchisee's progress.

A total of 193 franchisees completed the work, but Davichi Optical Chain did not pay the 20 percent of renovation costs it was legally required to contribute. The commission calculated that the total amount the company withheld in legally required store-improvement cost sharing came to approximately 502 million won.

The company was also sanctioned for running advertising and promotional campaigns without obtaining prior consent from franchisees. Between July 2022 and October 2024, Davichi Optical Chain conducted 652 advertising campaigns and 87 promotional events that required franchisees to cover part of the costs — but obtained consent only from an 18-member body called the "Three-Star Committee," drawn from a total network of 292 franchisees.

Under the Franchise Business Act, when a franchisor runs advertising or promotional campaigns that franchisees must fund in whole or in part — absent a separate agreement — it must obtain prior consent from at least 50 percent of all franchisees for advertising and at least 70 percent for promotional events.

Davichi Optical Chain argued that it had secured consent through a committee of elected franchisee representatives, but the commission ruled that even elected representatives lack the authority to decide on cost obligations on behalf of the entire franchisee body.

The action marks the first time the commission has sanctioned a franchisor under the Franchise Business Act specifically for forcing sales targets. The commission determined that setting a target sales ratio for a specific product — not just a sales revenue or volume target — also constitutes a prohibited sales target.

The commission also confirmed that the store-improvement costs a franchisor is required to share include supervision and other interior construction expenses, and that elected franchisee representatives cannot give prior consent for advertising and promotional campaigns on behalf of the broader franchisee group.

Davichi Optical Chain said it respects the commission's ruling and the intent of the Franchise Business Act, but plans to review the final written decision carefully and submit a formal response on points where it believes actual operating practices were not fully reflected or where it disagrees with the legal assessment.

The company said the evaluation of whether sales targets were truly mandatory, the scope of cost-sharing obligations for store improvements, and the method of obtaining prior consent for advertising and promotional events should all be assessed in light of its actual consultation and decision-making processes with franchisees. It added that it would overhaul its internal management systems to ensure that its franchisee consultation and feedback processes can be clearly verified against the procedures and documentation required by law.