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Pizza Hut under fire for murky marketing spending

Franchisees of global dining brand Pizza Hut on Monday visited their Korean headquarters in southern Seoul to demand an audit into the marketing and other fees they have paid to the head office for the past several years.

About 20 people representing a group of 247 Korean franchisees requested the pizzeria chain to disclose the usage of the 5 percent of sales revenue that each franchisee has paid to the headquarters for marketing fees. The amount is assumed to be more than 10 billion won ($8.87 million) every year.

The protesters claimed that the company has ignored four legally certified packages sent by mail delivering such messages and that the visitation was to assure the company that they would not back down. About 110 franchisees filed a suit against Korea Pizza Hut over the matter last month and the Fair Trade Commission launched an investigation into the matter in May.

According to an official document by Korea Pizza Hut and its franchisees, the latter are required to pay 0.8 percent of sales revenue as an “admin fee” for the computing system management, merchandise of ingredients, marketing as well as customer service.

However, the franchisees are actually bound to pay an additional 5 percent for marketing and 6 percent for royalty fees. If they refuse to pay, they lose the franchising contract, they claimed.

Moreover, Pizza Hut lacks transparency in marketing, they said. While the headquarters have been unsupportive of “buy 1 and get 1 free” and other discount promotions, its advertising and marketing activities have been less than impressive, they said.

“Recently, the company has been airing advertisements out of our operation hours -– between 11 a.m. and 11 p.m. -– that have been of little help to our business. Moreover, the number of TV or radio advertisements as well as online ads exposed have fallen in the past three years. We need to see the book and see the numbers when we are obliged to pay the fees,” the group said.

“We can only suspect breach of conduct and embezzlement,” a franchisee said.

Pizza Hut did not answer calls by The Korea Herald for comment.

By Bae Ji-sook (baejisook@heraldcorp.com)



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