Chicken franchises find ways to raise prices

A street at Daegu’s Seobu market, which is famous for its numerous franchise restaurants. Recently, chicken franchises have been raising their prices due to rising costs. [JOONGANG ILBO]

Mr. Lee, the owner of a Pelicana Chicken franchise, recently decided to increase the price of all chicken items at his restaurant by 1,000 won ($0.89).

“This month, the franchise headquarters raised the prices of all supplied goods, from chicken to packaged radish,” said Lee. “Additionally, the hourly pay for our delivery employees has increased by 20 percent compared to a year ago to between 9,000 and 10,000 won.

“It’s hard to stay afloat unless we raise our prices.”

Owners of other Pelicana Chicken restaurants are trying to find the right time to raise their prices as well.

“Since next year’s minimum wage is going to be raised, we don’t have any other choice but to raise our product prices,” said another Pelicana Chicken owner, who is a member of a group of around 10 franchisees in Seodaemun and Mapo Districts in western Seoul.

Another store owner said that rather than raising chicken prices, they could raise their delivery fees.

Delivery restaurants, including chicken shops, are under immense pressure to raise prices. Unlike in the past, when franchise headquarters would announce price increases, franchisees are independently raising the prices of the sold goods.

“The stores are raising the prices on their own, rather than from the headquarters,” said Lee Dong-seon, the head of Pelicana Chicken. “This year alone, 20 of the franchisees have requested price increases of 1,000 won and 2,000 won, which were reviewed by the headquarters. We expect more franchisees to make the same request.”

Under the Korean franchise law, franchisees can set prices after negotiating with their headquarters, and the headquarters can only propose recommended prices.

Starting in May this year, several Hosigi Chicken franchises raised their prices by 2,000 won. But even after raising their prices, the restaurant owners say their profits haven’t improved by much.

“In the chicken business, delivery is important, but today, competition has gotten worse as even other food businesses are offering delivery,” said one Hosigi Chicken franchise owner who requested anonymity. “While orders are falling, expenses, such as labor costs, have been rising, which have been affecting profits.”

The owner said the recent heat wave isn’t helping either.

“Because of the heat, chicken prices have gone up, and now it costs nearly 10,000 won [to buy] two chickens from headquarters,” the store owner said.

Since May, many chicken franchises have been charging for delivery. This policy was adopted in to increase chicken prices without actually raising the price of the chickens themselves to avoid consumer backlash.

Kyochon has been charging 2,000 won for delivery from all of its restaurants. Roughly 20 to 30 percent of BBQ Chicken branches charge for delivery, while 5 percent of BHC Chicken restaurants charge for delivery.

But more chicken restaurants are believed to have started charging for their delivery services and also raising prices on their menu items.

“When selling one fried chicken, food expenses account for 56 percent [of the price],” said Jin Jeong-ho, who is the head of an association of BHC franchisees. “Yet headquarters show no signs of lowering the supplied goods costs.

“As such, we have to pass the rising costs on the consumers in the form of charging delivery or raising prices.”

One of the main reasons that franchise headquarters are reluctant to raise prices across the board is fears of repercussions from the government.

Last year, BBQ and other notable chicken chains attempted to raise prices, but they faced heavy public backlash.

Soon, the Fair Trade Commission started an investigation into the franchises’ headquarters over violations of the fair trade act. This led to the franchises retracting their attempts to raise prices.

But the situation this year is different as many of the price increases are coming from small business owners, particularly franchisees who are facing heavy financial burdens due to rising costs.

The current situation in the fried chicken world is expected to spill over to other franchise businesses.

“Once the chicken franchise industry raises prices, other fast food and pizza franchises are likely to follow,” said Jung Yeon-sung, a professor of business administration at Dankook University.

BY KIM YOUNG-JOO [lee.hojeong@joongang.co.kr]