Overseas business has been a dream for many Korean restaurant companies.
They look up to global giants like McDonald’s or Yum! Brands, Inc., operator of Taco Bell, KFC and Pizza Hut, that rake in billions of dollars worldwide.
Among Korean firms, CJ Foodville is a frontrunner with about 130 stores abroad including Bibigo and VIPS restaurants, Tous Les Jours bakeries and A Twosome Place cafes, mostly in China and Southeast Asia.
But even CJ is just in the investment stage, and is still far from thriving overseas.
And at this critical time when leading domestic restaurant chains are eyeing foreign markets, they are likely to be barred from growing further at home, where they earn the money to invest abroad.
The National Commission for Corporate Partnership last month advised restaurant companies that make over 20 billion won ($18 million) in sales and have more than 200 employees to refrain from opening new stores in a bid to protect small eateries.
Exceptions apply to opening restaurants in large shopping malls, subway or railway station areas, new towns of over 3.3 million square meters developed by the government and newly developed commercial zones.
The state-funded panel designates trades deemed suitable for only SMEs, such as bakeries and restaurants, and advises large firms to stay away from them. Its “advice” is more or less a rule since those who refuse to accept it are subject to government orders and even fines.
The commission and trade associations of restaurant franchises as well as small diners are discussing details of the exceptions such as how to define “station areas.”
“Things like how many meters from a station constitute a ‘station area’ are under discussion to be determined by the end of March,” said Kim Yoon-hee, an official at the commission.
Large firms argue that the exceptions have little meaning because they already have restaurants in major station areas such as Gangnam Station, Myeong-dong and Hongdae.
“If we are allowed to open only in station areas and large shopping malls in Korea, where we already have stores, we can’t earn enough money to invest abroad,” said an official at a major restaurant firm who wished to remain anonymous for fear of losing favor with the commission.
“When we prepare to open overseas, people there ask us about our business at home. If we don’t have a strong business here, we can’t go global.”
Besides, large firms’ stores open on main streets, not in small alleys which the government seeks to save for mom-and-pop eateries.
“We don’t hurt diners operating on backstreets because we open on main streets to promote our brands despite the expensive rent,” the official said.
“And we don’t make much money because most of the restaurants’ profits go to the building owners as rent. In Korea, it’s the building owner who profits by having large restaurants as tenants.”
Moreover, large companies claim that they take up only a tiny portion of the domestic market.
The annual size of the Korean dining market amounts to about 70 trillion won, while McDonald’s and Yum! combined make around 50 trillion won worldwide.
“Conglomerates account for only about 0.1 percent of the domestic market in terms of the number of restaurants which go in sync with revenue,” the official said.
“Foreign governments like Japan, Vietnam and Thailand fully support restaurant businesses because it’s a matter of cultural competition. I don’t know why the Korean government is so eager to kick us out of business.”
Nolboo NBG, which has a number of dining brands including spicy sausage stews, oversees about 700 franchised stores nationwide, owned mostly by retired people.
It has three Nolboo Hangari Galbi restaurants abroad ― two in China and one in Singapore ― which aren’t profitable yet, and the firm says it needs further growth at home to keep investing overseas.
“We started from a 16-square-meter store in Seoul’s Sillim-dong in 1987 and grew this much by doing nothing else but restaurants,” said Nolboo spokesman Kim Jin-guk.
“Banning companies that started as small eateries from launching new brands goes against the whole point of the (commission’s) recommendation, which is (to foster coprosperity).”
Under the panel’s advice, self-employed people who own the franchised Nolboo stores won’t be able to move to other locations even when their store areas lose their commercial vigor.
“Sales of a franchised business rise only when the franchise grows in size. If we can’t expand, the company’s support of the franchised stores for advertising and promotion will be limited, and the store owners would go bankrupt,” Kim said.
“We’ve been knocking on doors in overseas markets for a long time, but haven’t seen much progress. Overseas business requires a lot of investment for thorough market research and development of new menus to suit local customers’ tastes.”
Kim also added that one can’t attract attention abroad without a robust business at home.
Nolboo NBG made about 100 billion won in revenue last year and about 10 percent of that in operating profit.
Most of Nolboo NBG’s sales come from supplying key food materials such as special sauces to the stores. It receives only 150,000 won per month in royalties from each store. The company educates the stores’ staff about its unique recipes and offers consulting services. The stores shop for their own vegetables.
By Kim So-hyun (email@example.com