Franchise restaurant owners sour on brand power amid scandals, slumping profits

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Franchise restaurant owners sour on brand power amid scandals, slumping profits

Published: 17 May. 2025, 07:00

Audio report: written by reporters, read by AI

A Hong Kong Banjeom restaurant, operated by celebrity chef Paik Jong-won's company Theborn Korea, offers discounts on May 13 in Seoul. [YONHAP]

Franchises may be losing their charm for business owners, especially restaurants and cafes.

On Tuesday evening, a branch of Saemaul Restaurant in Gangnam District, southern Seoul, sat noticeably empty despite what should have been a busy dinner rush.

“Last year, we benefited from Paik Jong-won’s popularity, but I didn’t expect things to turn out like this,” said the franchise owner, pointing out that they had taken down Paik’s photo from the restaurant wall.

Once seen as a lifeline for self-employed individuals, the franchise industry in Korea is experiencing turmoil as an economic slump continues to erode profitability.

From hero to zero

Tensions between franchisors and franchisees are escalating, with Theborn Korea — which operates 22 dining brands including Paik’s Coffee, Hong Kong Banjeom, and Saemaul Restaurant — at the center of recent disputes.

A Hong Kong Banjeom restaurant, operated by celebrity chef Paik Jong-won's company Theborn Korea, offers discounts on May 13 in Seoul. [YONHAP]

Franchisees of Yeondon Ball Katsu, one of Theborn Korea’s brands, filed a complaint with the Fair Trade Commission last June, accusing the company of violating franchise business laws. They claimed the head office promised monthly revenue of 30 million won ($21,500) and a profit margin of 20 to 25 percent, which they said never materialized. Theborn Korea denied making any such guarantees.

The situation has worsened following a series of public controversies involving Paik himself. Recent scandals include underreported pork content in the brand’s "Paik Ham" sausages, mislabeling of ingredient origins, and allegations of abusive behavior on TV programs. The resulting consumer backlash has hit all affiliated brands, causing Theborn Korea’s stock price to plunge from 51,000 won at the time of its November 2024 public listing to 27,850 won as of Wednesday.

“Helping franchise owners through this tough time is the top priority," Paik said at a press briefing on Tuesday. "We will invest 30 billion won over three months in marketing and support programs.”

He added, “Our goal is to increase store visits, and franchisees are on board with this strategy.”

Disillusionment over the ‘brand advantage’

Franchisees often enter the business believing in the power of brand recognition, only to find themselves in conflict with the head office over issues like product pricing, marketing costs and projected revenue.

In addition to Yeondon Ball Katsu, brands such as Sulbing and Yogerpresso have also faced disputes over unmet sales expectations.

Mega MGC Coffee's advertisement using footballer Son Heung-min as a model [MEGA MGC COFFEE]

Low-cost coffee franchises like Mega MGC Coffee and Compose Coffee have drawn criticism for transferring celebrity endorsement costs to franchisees. Mega MGC, operated by Ann House, saw its marketing expenses triple from 3.7 billion won in 2022 to 12.5 billion won in 2023 after hiring football star Son Heung-min. Franchisees were required to cover 50 percent of these expenses.

Compose Coffee followed a similar path, reportedly passing on 20 billion won of a 60 billion won campaign featuring BTS member V to franchise owners.

Legal reform on the horizon

Against this backdrop, a proposed amendment to the Franchise Business Act was fast-tracked in the National Assembly last month. The revision would require the registration of franchisee organizations and allow for administrative penalties if franchisors refuse to negotiate with them. Industry watchers expect the bill could take effect as early as the first quarter of next year.

Franchisee representatives have welcomed the bill.

“Previously, when headquarters ignored requests for negotiations, there was no legal recourse except to file a dispute with the Fair Trade Commission — a daunting process,” said the Korea Franchisee Union.

However, franchisors are expressing concern. “Most food service franchises in Korea operate fewer than 10 outlets,” said an official from the Korea Franchise Association. “This could end up like the Distribution Industry Development Act, which hurt large supermarkets while failing to boost traditional markets.”

Convenience store operators are also anxious.

“We’re concerned that a proliferation of franchisee groups could lead to conflicting demands,” said a representative of the Korea Association of Convenience Store Industry. “The bill needs to be reviewed again, with necessary revisions to avoid unintended consequences.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY KIM KYUNG-MI [[email protected]]