FamilyMart Co., Ltd.

1297th Commissioners' Meeting (2016)

Case:

FamilyMart violated the Fair Trade Law by failing to disclose important franchise information in writing before franchise contract signature

Keyword(s):

Franchise, important information, order restriction
Reference:
Fair Trade Commission Decision of September 14, 2016 (the 1297th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 105104

Industry:

Convenience Stores, Chain (4711)

Relevant Law(s):

Article 25 of the Fair Trade Law

Summary:

  1. The FTC received complaints from franchisees of FamilyMart Co., Ltd. (hereinafter referred to as FamilyMart) stating that FamilyMart demanded they had to follow the company� order placement instructions and their sales could not exceed a certain percentage of the supplies obtained (which FamilyMart called product procurement-sales ratio). If a franchisee failed to place orders according to the stipulated amounts or the product procurement-sales ratio was higher than a certain rate, it would have to attend training courses, be given admonitions or get a fine. However, franchisees had not been given such information before they entered into the franchise contract with FamilyMart.
  2. Findings of the FTC after investigation:
    The FTC administered a questionnaire survey on the franchisees of FamilyMart and also interviewed some of them. Most franchisees expressed that FamilyMart had not provided the aforesaid information but, after they began operation, often demanded them to keep fixed amounts of inventories or certain inventory ratios. Some franchisees also mentioned that FamilyMart would set order targets for some specific products. Meanwhile, related documents presented by FamilyMart indicated that the company had sent written notices to demand franchisees with excessively high product procurement-sales ratios to make improvements. If the same thing happened again, the company would regard it a breach of contract and take action accordingly.
  3. Grounds for disposition:
    1. Restrictions set by franchisers on franchisees, such as those on items and minimum amounts of products or raw materials to be ordered, are closely associated with intra-brand competition, funds to be invested by franchisees, as well as management performance and risks. For instance, the regulations regarding minimum suggested amounts of orders or product procurement-sales ratios FamilyMart imposed on its franchisees would have an effect on the amounts of scrap losses because the franchisees had to absorb product scrap losses. In addition, the regulations also restricted the business activities of franchisees. Consequently, they would be a huge concern for parties interested in joining the franchise. As a matter of fact, such regulations were important information that would-be franchisees needed to assess if they wanted to become part of the franchise or choose a different franchiser.
    2. The FTC carefully reviewed the documents and the franchisee contract FamilyMart provided to parties interested in joining the franchise. They only mentioned that franchisees were required to place the right amounts of orders at the right time and to follow management instructions from the company. Nothing about minimum suggested amounts of orders or product procurement-sales ratios that meant restrictions on franchisees was disclosed in the franchise contract. For this reason, the FTC concluded that the minimum suggested amounts of orders or product procurement-sales ratios set by FamilyMart had constituted restrictions on its franchisees but the company had never disclosed them in writing before the contract was signed by both parties; the conduct was therefore in violation of Article 25 of the Fair Trade Law.
    3. After assessing the sales of total number of outlets of FamilyMart for the past three years, the number of new franchisees recruited in the past two years, the duration of the unlawful practice, the amounts of money invested by franchisees, the direct impact of the unlawful practice on the judgment of trading counterparts about shop management and on the loss of contract signing opportunities by competitors, the level of cooperativeness throughout the investigation and the violation being the first ever, the FTC cited Article 42 of the Fair Trade Law while ordering FamilyMart to correct the unlawful act within two months after receiving the disposition and at the same time imposed an administrative fine of NT$3 million on the company.

Appendix:
Taiwan FamilyMart Co., Ltd.� Uniform Invoice Number: 23060248

Summarized by:Tsai, Jing-Hui; Supervised by: Ho,Yen-Jung