If you love coffee, fried chicken, and French bread, then this might just be the market for you
On the surface, South Korea’s franchise industry may not appear to be all that different from other regions within East Asia. The market is worth around $94.7bn, and according to the Korea Fair Trade Commission (KFTC), there are approximately 4,268 different franchised businesses operating within the country.
However, when you start unpacking the details, it becomes clear that South Korea is a pandora’s box of a country, with many of its own hidden quirks and niches that distinguish it on the global franchising arena. A deep appreciation for coffee may not be something you’d naturally associate with Koreans, for example, and yet there are around 14,000 coffee shops in Seoul alone, with more than 71,000 across the whole country – many of them franchised.
Make no mistake, though: a franchisor can’t just copy Starbucks and hope to thrive. This is perfectly evidenced by the somewhat alarming statistic that, according to the Korea Franchise Association (KFA), only 0.8 per cent of brands survive in Korea after 10 years.
As Michal Waszkiewicz, director of sales and marketing at international relations expert Intralink, puts it: “How you position your product is all-important – and something you’ll want to get right from the start.”
The big picture
To target the right demographic when taking a brand into Korea, it’s important for franchisors to understand exactly what they’re dealing with.
Currently, there are around 3,219 food and beverage franchises operating in the country, 769 service-related businesses, and 280 retail brands. These franchises are supported by South Korea’s population of 49 million; the majority of which live in Seoul, the country’s capital. As a whole, South Korea has a GDP of $1.64tr, making it the 12th largest economy in the world.
Despite the overwhelming proportion of restaurants and cafes in the country, 64.7 per cent of the franchise market’s overall revenue is generated by retail stores. The reason? South Koreans like to look good.
“Korea is a highly image-conscious country,” explains Waszkiewicz. “People have a strong fashion sense – you only have to walk through the trendy districts of Gangnam or Garosugil to be surrounded by swarms of stylish, good-looking people.”
However, as with many of Korea’s cultural trends, its obsession with fashion seems almost paradoxical. Fashion retail may look like easy money for franchisors on the surface, but incoming brands will need to appreciate South Korea’s consumer sensibilities to truly make the most of the market.
“Western brands setting up franchises in Korea often underestimate how different the lifecycle of a product is in the Korean market,” says Waszkiewicz. “Consumer fads gain much bigger magnitudes in Korea: sometimes, it appears that literally the whole country decides to buy a product that has appeared in a popular K-Drama or K-Pop music video. But then, they disappear into oblivion much quicker than they would in Europe or America.”
National favorites
Don’t think South Korea’s franchise market is all doom and gloom. It’s just important to understand what incoming brands are up against when attempting to penetrate the country’s fad-focused identity. You only need to look to South Korea’s own franchise brands to understand just how overwhelmingly popular a concept can be. When it comes to the food and beverage landscape, one name stands out as a legacy competitor that’s seen nothing but exponential success over its multidecade history: Paris Baguette.
Now at around 3,200 stores in South Korea alone, the ferocious demand for Paris Baguette’s freshly baked goods shows no sign of stopping. The menu includes pastries, sandwiches, teas, salads, and coffees (of course), and its ceaseless striving for quality has allowed Paris Baguette to maintain a leading position in the Korean food industry.
“Western brands setting up franchises in Korea often underestimate how different the lifecycle of a product is in the Korean market”
Paris Baguette isn’t limited to only South Korea, however. The brand can be found in the U.S., China, and throughout Europe – even in Paris, where the franchise holds its own against truly authentic French bakeries.
Of course, it’s impossible to talk about Korean food without mentioning Korean fried chicken; a universally beloved delicacy adopted by many franchisors hoping to carve out a position in the competitive market. One of the most notable home-grown brands offering this popular treat is Kyochon, which has successfully taken Korean fried chicken overseas to the U.S., China, Thailand, Indonesia, the Philippines, and Malaysia. Kyochon’s global portfolio currently includes around 1,033 units.
That being said, Korean fried chicken may not be the golden meal ticket that it first appears. According to Statistics Korea, fried chicken franchises earned the least of all food and beverage offerings in 2019, with the average revenue of a franchise location sitting at around 169.1m SouthKorean won (roughly $144,622). This may be due to fried chicken operators facing the fiercest possible competition, as the barrier to entry for a concept is often relatively low.
For comparison, convenience stores earned around $436,173 per location, and bakeries brought in $359,201. If these numbers show anything, it’s that doing intense research on the viability of a franchise concept is absolutely crucial in Korea; maybe even more so than other East Asian countries.
Quality over nationality
Korean brands aren’t the only franchises that have the potential to succeed in Korea, of course. “I think it’s fair to say that Korean customers see the quality; not the brand itself,” says Jonathon Kwon, managing director of T BUN, a burgeoning international bubble tea franchise originating in Korea. If an international franchise can prove it offers quality, then it can certainly penetrate this affluent region.
Just look to the top-performing franchises in the country, and it becomes clear that international heavy-hitters have made a considerable impact in South Korea’s market; regardless of sector. According to the KFTC, 10 U.S. brands rank among the country’s top 100 franchises. These include Burger King (ninth), Office Depot (13th), and Subway (47th).
“I think it’s fair to say that Korean customers see the quality; not the brand itself”
South Koreans embrace premium brands that do enough to distinguish themselves amongst the sometimes overwhelming levels of saturation. One such brand is Club Pilates, that recently signed an agreement to bring over 100 studios to South Korea over the next five years. This is following another agreement signed last year that will take Club Pilates to Japan, and it seems South Koreans see this as a sign of quality.
When it comes to international fitness, Club Pilates is joined by F45 Training and Anytime Fitness. The former announced it was soon expanding to South Korea, while the latter has said that it’s eyeing the Korean market as its next potential target. Koreans value physical wellbeing, and the biggest names are taking notice.
Finger on the pulse
If there’s one thing to take away from all of the statistics and case studies then it’s this: South Korea is complicated. It’s a market without compare and will embrace franchises as quickly as it will toss them aside. International successes don’t automatically guarantee a free pass, and being mindful of the country’s rapidly-changing culture is paramount.
“Sensitivity to trends is a major characteristic that makes the Korean franchise market stand out,” says Michal Waszkiewicz. “The worlds of fashion, beauty, retail, and entertainment all converge – and the intersection is extremely dynamic.
“The question to address is how much of your brand DNA do you keep intact, and how much do you flex to suit the Korean market?”
ABOUT THE AUTHOR
Kieran McLoone is the deputy editor for Global Franchise.
