Hello. I am Attorney Lee Young-kyung from Cheongchul Law Firm.

We will take a look at the press release from the Fair Trade Commission today, along with the antitrust lawyers from Cheongchul Law Firm, who are representatives of various companies and the Fair Trade Commission, performing tasks related to the Fair Trade Act, Advertising Act, and Subcontracting Act. Today, we will examine a matter where the Fair Trade Commission issued corrective orders and imposed fines regarding the abuse of trading position by Kyochon F&B Co., Ltd.

This posting is based on the Fair Trade Commission's press release dated October 13, 2024, and please note that the final disposition may change due to reasons such as administrative litigation by the parties.

1. Facts of the Case

First, looking at Kyochon F&B's general status, since its establishment on November 12, 1999, it has continuously grown, possessing 1,365 franchises as of 2022, with 373 employees as of June 30, 2024. In the last three years, the financial status was as follows: in 2020, a sales amount of 435.8 billion won (operating profit of 28.5 billion won, net profit of 16.9 billion won), in 2021, a sales amount of 493.4 billion won (operating profit of 27.9 billion won, net profit of 22.2 billion won), and in 2022, a sales amount of 498.8 billion won (operating profit of 2.8 billion won, net profit of 2.6 billion won) was recorded.

Looking at the distribution structure of Kyochon F&B’s exclusive oil, it is as follows: ① The cooking oil manufacturer supplies exclusive oil to Kyochon F&B ② Kyochon F&B supplies exclusive oil to cooperating companies ③ The cooperating companies sell the exclusive oil to Kyochon Chicken franchises as the final sale.

Examining the changes in price and margins at each transaction stage in this structure from 2016 to 2021, we see the following trends:

• Kyochon F&B purchase price (excluding VAT): 28,500 won in 2019 → 36,000 won in 2021

• Kyochon F&B margin: 3,636 won in 2019 → 4,364 won in 2021

• Cooperating company supply margin: 1,500 won in 2019 → 0 won in 2021

• Franchise purchase price (including VAT): 37,000 won in 2019 → 44,400 won in 2021

The problematic behavior is as follows. In May 2021, during the contract period from January to December 2021, Kyochon F&B unilaterally lowered the distribution margin of the cooperating companies from 1,350 won per can to 0 won, violating the original agreement with the cooperating companies (minimum margin of 1,000 won per can). As a result, the cooperating companies suffered a total loss of 715,420 thousand won from May to December 2021.

2. Fair Trade Commission's Judgment

The Fair Trade Commission determined that Kyochon F&B's actions constituted a violation of Article 45 (1) (6) of the Monopoly Regulation and Fair Trade Act (abuse of trading position) and Enforcement Decree Article 52 [Table 2] (6) (provision of disadvantage).

Notably, while the distribution margin of the cooperating companies decreased from 1,500 won in 2019 to 0 won in May 2021, Kyochon F&B's margin increased from 3,273 won to 4,364 won during the same period. This provides evidence that the burden of rising exclusive oil prices was unilaterally passed on only to the cooperating companies.

Accordingly, the Fair Trade Commission decided on the following sanctions:

• Corrective order: prohibition of conduct

• Fine: 283 million won

3. Implications

This action from the Fair Trade Commission has the following significance: First, it severely sanctioned the abuse of superior status against the cooperating companies during the contract period.

Second, it curbed the unilateral passing of the burden resulting from the rise in raw material prices due to COVID-19 onto the cooperating companies.

Third, it especially noted that while the margin of the cooperating companies was reduced to 0 won, the margin of the headquarters increased, correcting the unilateral passing of cost burdens.

The Fair Trade Commission has stated that it will continue to strengthen monitoring of unfair trading practices in sectors closely related to people's livelihoods, such as chicken franchise businesses, and will enforce the law more strictly.

Cheongchul Law Firm has extensive experience and expertise in dealing with investigations related to the Fair Trade Act, as well as in responding to reviews and administrative litigation cases. If you are contemplating a case related to this, please feel free to contact us.

Cheongchul Law Firm will be your reliable legal partner. If you need to consult a lawyer, please contact us right now.