The Korea Fair Trade Commission (“KFTC”) annually conducts a written survey of franchisors and franchisees to assess business practices in the franchise sector and to inform its regulatory and policy initiatives. The results of the most recent survey were published on December 30, 2025.
For the most recent survey cycle, the KFTC examined franchise practices between July 2024 and June 2025 across 21 industries. The survey covered 200 franchisors, consisting of 100 large franchisors with 100 or more franchisees and 100 small- and mid-sized franchisors with fewer than 100 franchisees, as well as approximately 12,000 franchisees operating under those franchisors.
The survey reflects how franchisees view recent changes in business practices, their level of satisfaction with the KFTC’s franchise-related policies, and their experience of unfair conduct in their dealings with the franchisors. It also highlights the KFTC’s regulatory focus on key issues, including mandatory purchase items, franchisee associations, and the early termination of franchise agreements. The principal findings and their implications are outlined below.
I. KEY FINDINGS
1. Perceived Improvements in Business Practices, Policy Satisfaction, and Unfair Conduct
The survey shows that 71.1 percent of franchisees reported an improvement in business practices, a slight decrease from the previous year at 71.6 percent. The proportion of franchisees expressing satisfaction with franchise-related policies also declined marginally to 78.7 percent, compared to 78.8 percent in the prior year. Franchisees affiliated with large franchisors operating 1,000 or more stores reported relatively lower levels of perceived improvement and policy satisfaction.
The percentage of franchisees who reported having experienced unfair conduct by their franchisors declined significantly to 47.8 percent, down from 54.9 percent in the previous year. While this reduction indicates some improvement in overall compliance, the survey results suggest that unfair practices remain a concern in the franchise sector.
2. Mandatory Purchase Items and Franchise Fees
According to the survey, 66.5 percent of franchisees were aware of the regulatory requirement to specify mandatory purchase items—namely, products or services that franchisees are required to purchase from franchisors—as well as the applicable pricing calculation methods in franchise agreements.
While the KFTC assessed that the regulatory amendments concerning mandatory purchase items have had positive effects, franchisees continue to raise concerns regarding high prices, the designation of unnecessary mandatory purchase items, and deterioration in quality. In particular, 83.8 percent of franchisees responded that certain mandatory purchase items designated by franchisors were unnecessary, representing an increase from 78.7 percent in the previous year.
In light of these findings, the KFTC indicated that it will continue to monitor compliance with the mandatory purchase item requirements and strengthen outreach and education efforts to ensure effective implementation of the regulatory framework.
3. Franchisee Associations and Collective Negotiations
The survey indicates that the proportion of franchisors with an organized franchisee association declined to 14.5 percent, down from 18.0 percent in the previous year. The percentage of franchisees participating in such associations also decreased to 15.3 percent, compared to 20.1 percent in the prior year.
Despite this decline, recent legislative developments signal an increased regulatory focus on collective engagement by franchisees. Amendments to the Fair Transactions in Franchise Business Act (“Franchise Act”) were passed by the National Assembly on December 11, 2025, which introduced a registration system for franchisee associations and requiring franchisors to engage in negotiations with registered associations.
In light of the survey results, the KFTC announced that it will use the period prior to the effective date of the amendments, which will be one year after promulgation, to gather input from relevant stakeholders and to develop subordinate regulations aimed at ensuring stable implementation of the new framework.
4. Early Termination of Franchise Agreements and Penalty Fees
For the first time, the survey examined whether franchisees had considered terminating their franchise agreements prior to expiration. According to the results, 42.5 percent of franchisees reported having considered early termination. This figure was higher among franchisees affiliated with large franchisors operating 1,000 or more stores, at 47.1 percent.
The primary reasons cited for considering early termination were poor sales performance at 74.5 percent, unfair conduct by franchisors at 31.3 percent, and personal circumstances such as illness at 12.9 percent. Among franchisees who considered but ultimately did not pursue early termination, the most commonly cited reasons were concerns regarding penalty fees (60.6 percent), expectations of a recovery in sales (46.9 percent), and the need to recover investments and the burden associated with disposing of remaining inventory (5.8 percent).
In response, the KFTC announced plans to revise the content and structural requirements of franchise disclosure documents to improve the clarity of information on early termination penalty fees for prospective franchisees before they enter into franchise agreements, which should occur during the first half of 2026.
In addition, the KFTC indicated that it will pursue legislative amendments to expressly provide, under the Franchise Act, a statutory right for franchisees to terminate franchise agreements without excessive penalty fees in unavoidable circumstances. The KFTC emphasized, however, that such a termination right would constitute an exception to the principles of freedom of contract and respect for contractual obligations. Accordingly, the grounds for exercising such a statutory termination right would be narrowly defined following extensive consultation with industry participants and experts.
II. IMPLICATIONS
The survey results suggest that business practices in the franchise sector have continued to improve overall, while highlighting persistent areas of concern, particularly among franchisees operating under large franchisors. The slight year-on-year decline in perceived improvements and policy satisfaction appears to be driven by an increasingly challenging business environment, as franchisees continue to face weak sales, rising operating costs, and broader economic uncertainty.
From a regulatory perspective, the survey underscores the KFTC’s growing focus on enhancing transparency at the pre-contract stage, strengthening collective engagement by franchisees, and addressing imbalances arising from early termination penalty structures. The KFTC’s announced follow-up measures signal a continued shift toward more prescriptive regulation of franchisor-franchisee relationships.
In light of these developments, franchisors should carefully review their compliance frameworks, with particular attention to disclosure requirements relating to mandatory purchase items and early termination penalty fees, internal processes for engagement with registered franchisee associations, and contractual provisions that may be affected by the potential introduction of a statutory termination right. Proactive assessment and preparation will be critical to managing regulatory risk and maintaining stable franchise relationships.
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[Korean version]
