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Mega Coffee parent fined for financial abuse of franchisees

Published: 01 Oct. 2025, 16:22

A Mega MGC Coffee store in Seoul on April 1. [YONHAP]

Mega MGC Coffee, one of Korea’s fastest-growing franchise chains, has been hit with a multi-billion-won fine for squeezing its franchisees — from forcing them to buy overpriced equipment to making them cover hidden fees on mobile gift certificates.

Ann House, the chain’s operator, has been ordered to pay a fine of more than 2.29 billion won ($1.63 million) for unfair practices, according to the Fair Trade Commission (FTC) on Wednesday.

The company was also issued a corrective order for violating the Fair Transactions in Franchise Business Act. For five years from August 2016, Ann House made franchisees shoulder the full 11 percent commission fee when customers used mobile gift certificates, without their consent or consultation.

Franchisees were unaware of the arrangement when signing contracts and only learned in July 2020 that they had been paying the fees themselves. While the exact damages could not be calculated due to lack of data, the FTC said that franchisees were unfairly forced to pay at least 276 million won.

Separately, the headquarters also pocketed 1.1 percent of total mobile voucher sales in the form of rebate-like payments.

Ann House was also found to have forced franchisees to purchase essential equipment such as ice makers and coffee grinders at excessive prices. Ice makers were sold for between 4.7 million and 6 million won, and grinders for around 1.6 million won, with the headquarters’ profit margins ranging from 26 to 60 percent.

Franchise contracts stipulated that if owners did not buy equipment from headquarters, the supply of raw materials could be suspended and the contract terminated. The FTC said such restrictions were illegal since the products in question were general commercial goods easily available at lower prices on the market.

In addition, in May 2022, Ann House obtained blanket consent from franchisees to share promotional costs without providing specific plans for a year, implementing 120 marketing campaigns under that agreement. The FTC ordered the company to correct the practice.

“These issues occurred before the current management took over and have since been resolved,” Ann House said in response.

However, the company expressed displeasure at the scale of the penalty, adding, “Imposing a fine of over 2 billion won for violations involving just two essential items appears to be based on our large sales volume. We plan to closely review whether calculating fines solely as a proportion of total sales is reasonable.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM CHUL-WOONG [[email protected]]