South Korea's FTC Issues Largest-Ever Franchise Fine to Coffee Chain for Shifting Costs to Store Owners
October 20 - 2025
Coffee Geography Magazine
In a landmark decision for South Korea’s franchise industry, the Fair Trade Commission (FTC) has levied a record $1.63 million fine against AnnHouse, the operator of the mega-chain Mega MGC Coffee, for a series of unfair business practices that abused its power over franchisees. The penalty announced is the largest ever imposed on a food service operator for violations of the Franchise Business Act, signaling a tougher stance from the watchdog against dominant head offices.
The core of the violation involved the company shifting financial burdens onto its network of small business owners. According to the FTC’s investigation, between August 2016 and July 2020, AnnHouse forced its franchisees to pay an 11 percent commission on all mobile gift certificate sales without first obtaining their consent. This practice illegally transferred a cost that should have been borne by the parent company, resulting in franchisees collectively shouldering an unfair financial burden over a two-year period beginning in 2018.
Beyond the gift certificate scheme, the FTC uncovered additional coercive tactics. From December 2019 through February 2025, AnnHouse compelled franchisees to purchase specific ice machines and coffee grinders directly from the operator, designating them as “must-buy” items. The company enforced this rule by threatening to suspend supplies of essential raw materials to any store that refused.
Furthermore, the contracts included a clause that allowed AnnHouse to terminate agreements with franchisees who did not comply, holding their businesses hostage over equipment purchases.
The operator also engaged in deceptive practices concerning promotional campaigns. While AnnHouse did receive consent from franchisees for a year-long campaign starting in May 2022, the FTC found that the company failed to provide them with critical details regarding the full cost and duration, leaving store owners in the dark about the true financial implications.
An FTC official described the case as “a penalty levied on a fresh type of unfair transaction act amid the rapidly growing online market,” highlighting the modern challenges franchisees face. The watchdog has ordered AnnHouse to rectify all its unfair practices and expects this sanction to help build a more transparent transaction environment. The FTC has pledged continued and stern measures to ensure franchisees are treated fairly by their head offices, marking a significant step toward rebalancing the power dynamic in one of South Korea's most competitive sectors.