Demand for Seoul franchise restaurants slows down

[Photo by Kim Ho-young]

South Korea’s capital, Seoul, saw the number of franchise restaurants decrease for the third consecutive year in the third quarter of 2023. This was driven by the intensified competition among restaurants due to the slowdown in demand for eating out and the increasing burden of costs, including delivery fees, since the Covid-19 pandemic according to an analysis on Sunday.

According to the Seoul Metropolitan Government’s online platform for neighborhood business district analyses on Sunday, the number of franchise restaurants in Seoul fell to 24,224 in the third quarter of 2023, down more than 1,000 from the same period a year ago. The number gradually declined after peaking at 26,030 in the third quarter of 2020, dropping by 1,806 over the past three years. This contrasts with the 6,633 increase in the number of general restaurants over the same period.

In terms of the business type, the trend of decreasing franchise restaurants was observed across the board, including Japanese, Chinese, and Western cuisines, as well as fast food and chicken. Coffee shops were the only ones in the food service industry that recorded an increase in the number of outlets due to the recent popularity of low-cost coffee brands. The decline was first observed in the high-rent office districts of Seoul, with the number of franchise stores in downtown commercial districts dropping by more than 10 percent to 11,011 during the cited period compared to 12,309 in 2019.

Industry insiders noted that franchisees initially preferred franchise models due to the brand power and stable income that they expect from headquarters but that the decline in sales due to the deteriorating Korean economy increased their cost burden. The financial pressure felt by owners increased due to additional costs such as training fees, franchise fees, and purchase costs for essential items like raw materials, along with delivery fees caused by the increase in delivery orders post-Covid-19, they said.

In contrast, the number of non-franchise restaurants increased steadily from 114,575 in the third quarter of 2019 to 123,693 in the same quarter of 2023. This was attributable to the declining popularity of franchises as ‘hidden restaurants’ discovered by individual consumers were widely shared on social media, naturally leading to marketing activities.

“While franchise businesses can be helpful in aspects such as interior design or menu preparation, the recent downturn in the self-employment economy has made even the franchise costs more burdensome,” Lee Eun-hee, a professor of consumer studies at Inha University, explained.