Burger chains on the menu as business and valuations boom

Industry

Published: 28 Jul. 2022, 18:06 Updated: 28 Jul. 2022, 18:14

Burger chains on the menu as business and valuations boom

People walk by a McDonald’s Korea branch in Seoul. [YONHAP]

Fast food in Korea is on the block with most major burger chains now up for sale.

The delivery boom offers the possibility of high valuations, and inflation may be helping as well.

Five chains ― McDonald's Korea, Burger King Korea, KFC Korea, Mom's Touch and Bas Burger — are being offered to buyers. Combined, they have more than 2,300 locations.

The most recent to test the waters is Tasters, which operates Bas Burger. It sent letters to companies that may be interested in the chain, which has 20 outlets. Investment banking sources put the asking price at 100 billion won ($76.7 million).

Affinity Equity Partners, a Hong Kong-based investment firm, has put Burger King Korea and Japan up for sale, and they are aiming for a 1-trillion-won valuation. McDonald's Corporation is hoping to get 500 billion won for McDonald's Korea. A 79 percent stake in Mom's Touch is being offered for sale by Korea F&B Holdings for 1 trillion won, and KG is selling KFC Korea for 100 billion won.

In part, the rush to market is a sign of the times, as rising interest rates and the possibility of recession compel the investors to unload their assets before sales and profits get hit by the storm that is widely being forecast.

In part, it is a testament to how well these businesses have done over the past few years, feeding people through the pandemic and developing highly lucrative delivery strategies.

Big profits could mean high price tags.

McDonald's Korea reported revenue of 1.06 trillion won in 2021, up 8.2 percent on year and a record high. Burger King Korea logged revenue of 678.4 billion won that year, up 18.7 percent and also a record high. The fast food chain received 17 million delivery orders last year, up 54 percent on year.

As life returns to normal, the regular business is returning.

McDonald's reports more eat-in customers and speculates that inflation could also help. As people struggle to make ends meet, the burger joints may be a good option.

Mom's Touch is seen as having additional value in terms of international expansion. It had two branches in the United States as of the first quarter and plans to open six in Thailand by end of this year.

It also has the advantage of not having to pay royalties to a foreign company.

McDonald's Korea paid a 54.3-billion-won royalty to McDonald's Corporation in 2021, up 6.3 percent on year. Burger King Korea paid 32.9 billion won to Burger King last year, up 21.9 percent on year.

The brands pay about 5 percent of their revenue in royalties.

With plans to branch out into Thailand, Jollibee Foods, which operates the Jollibee burger brand in various Southeast Asian countries, was named as a potential buyer of Mom's Touch. But the company denied the claims through a regulatory filing on July 12.

A Mom’s Touch branch in Gangseo District, western Seoul. [MOM’S TOUCH]

"We remain open to opportunities, but are very selective and stringent with acquisitions," read the filing. "With respect to recent months, Jollibee Foods has not been in any discussions with or given a bid for acquisition to any company either formal or informal."

Mom's Touch has 1,354 branches in Korea, more than any other burger or chicken sandwich chain.

"Mom's Touch branches are small- to mid-sized at around 20 pyeong to 40 pyeong," said Kim Jang-yeol, an analyst at SangSangIn Investment & Securities, referring to a Korean unit of measurement equal to 3.3 square meters. "It takes about 100 million won to open a branch compared to 300 to 500 million won needed to open branches of rival chains and also has the lowest interior decoration costs, allowing franchisees to open branches easily and with less money."

BHC, which runs the BHC Chicken fried chicken chain, was named as one of the potential bidders for Burger King by local media, but the company denied the reports. The main reason was the expensive price, with Burger King aiming to be sold for around 1 trillion won.

McDonald's Korea was put up for sale in 2016 for 600 billion won but wasn't able to find a buyer, with bidders such as a Maeil Dairies consortium and another led by CJ Corporation tapping out due to high prices.

Changing consumer tastes might be a factor in sales efforts. With Shake Shack and Gordon Ramsey Burger in the market and Lorton, Virginia's Five Guys coming to town, the burger market has become far more competitive.

BY LEE TAE-HEE [lee.taehee2@joongang.co.kr]