FTS Fried Chicken

1379th Commissioners' Meeting (2018)

Case:

FTS Friend Chicken Co., Ltd. was complained for violating the Fair Trade Law for adopting wrongful approaches to recruit franchisees for the "Garlic-flavored Salty Crispy Fried Chicken" chain

Keyword(s):

Salty crispy friend chicken, franchisee recruitment, information disclosure

Reference:

Fair Trade Commission Decision of April 11, 2018 (the 1379th Commissioners' Meeting); Letter Kung Fu Tzu No. 1071260339

Industry:

Food Service Activities via Stalls (5612)

Relevant Law(s):

Article 25 of the Fair Trade Law

Summary:

1. When inspecting the contracts signed between major franchisors and their franchisees in the country, the FTC discovered that FTS Fried Chicken Co., Ltd. (hereinafter referred to as FTS Fried Chicken) had not fully disclosed to its franchisees in writing important franchise information, including the "expenses required before starting operation," the "expenses required during operation," and "the statistics on contract cancellation and termination in the previous year." The conduct was in violation of Article 25 of the Fair Trade Law.
2. Findings of the FTC after investigation:
   Before signing contracts with parties interested in joining the "Garlic-flavored Salty Crispy Fried Chicken" chain, FTS Fried Chicken would provide them with the franchise contract, the chart of process to become a franchisee, the procedure to open a "Garlic-flavored Salty Crispy Fried Chicken" shop, a brief introduction brochure for the "Garlic-flavored Salty Crispy Fried Chicken" chain," a "chicken frying time, order and portion" list, the "Garlic-flavored Salty Crispy Fried Chicken Chain Member Funding Regulations," "the Quotation for the basic equipment needed in a Garlic-flavored Salty Crispy Fried Chicken shop," and a list of "shop management procedures." However, the company did not fully disclose to the potential franchisees in writing important franchise information, including "the expenses required before starting operation (costs of products and raw materials)," "the expenses required during operation (costs of products and raw materials)," and "the statistics on contract cancellation and termination in the previous year."
3. Grounds for disposition:
   (1)FTS Fried Chicken started to recruit franchisees for the "Garlic-flavored Salty Crispy Chicken" chain in 2005 and recruited 27 franchisees as of May 2017. The recruitment continued at the time of the FTC's investigation and the conduct of the company had had an effect on a large number of trading counterparts who had signed franchise contracts with the company. Most of the franchisees went to the company to talk about joining the franchise. Although the company began to post product promotion activities on Facebook in 2014, it only provided a franchisee hotline for parties interested in joining the franchise to contact the company. The company did not purchase to advertise on Facebook or any other media. In other words, there was no sign of any effort to recruit more franchisees.
   (2) FTS Fried Chicken asked for NT$80,000 from each party interested in joining the franchise as the franchise fee paid for technical coaching and management instruction. Parties interested in joining the franchise also had to purchase equipment needed to run the business and pay for remodeling. The capital to be invested was considerable and the amount could not be transferred to be used for other purposes. Meanwhile, the franchise contract was exclusive in its nature. Once a franchisee signed the contract with FTS Fried Chicken, the competitors of FTS Fried Chicken lost the opportunity to sign contract with such trading counterparts. However, the FTC's investigation showed that the company only recruited eight franchisees between 2015 and May 2017. The amount of franchise fees collected was not big. The frequency of successful recruitment was low and the amount and level of damage created were not high. The impact on trading order in the market was limited.
   (3) Before the contract was signed, FTS Fried Chicken did not provide information associated with the expenses required to purchase products and raw materials before starting operation and during operation. It was also stipulated in Article 5 of the franchise contract that franchisees had to purchase all products and raw materials from FTS Fried Chicken. Nonetheless, the FTC's investigation revealed that FTS Fried Chicken did not define the quantities of supplies franchisees were supposed to purchase from it. Neither did the company impose any minimum purchase amounts each week on franchisees. In addition, the business scale of FTS Fried Chicken was rather small. The company did not have any market power. It was therefore difficult to consider the amounts the franchisees had to pay to purchase products and raw materials provided by FTS Fried Chicken could be excessively large and cause damage to the rights and interests of franchisees.
   (4) After FTS Fried Chicken started to recruit franchisees in 2005, the FTC never received any complaints from its franchisees about suffering damage to their interests as a result of the company's failure to disclose the aforementioned information. In other words, there were no victims suffering from the practices of FTS Fried Chicken.
   (5) With the abovementioned combined, the FTC concluded that FTS Fried Chicken's failure to fully disclose to trading counterparts in writing important franchise information, including the expenses required before starting operation (costs of products and raw materials), the expenses required during operation (costs of products and raw materials), and the statistics on contract cancellation and termination in the previous year was unlawful. However, the violation was not serious at all. At the same time, FTS Fried Chicken already took measures to correct the unlawful act. Therefore, the FTC did not impose any sanction on the company.