Regulatory issues weigh on Kyochon Chicken as brand struggles to regain ground

Kyochon Chicken, once the leader in Korea’s fried chicken industry, now finds itself under intense scrutiny as regulators pursue criminal charges over alleged unfair practices while customers bristle at a new exclusive deal with Baedal Minjok.

A Kyochon Chicken branch in Seoul is pictured on April 3, 2023. [NEWS1]

Kyochon Chicken, once the unrivaled leader in Korea’s fried chicken industry, now finds itself under intense scrutiny as regulators pursue criminal charges over alleged unfair practices while customers bristle at a new exclusive deal with delivery giant Baedal Minjok.

Industry analysts say the company’s aggressive moves to reclaim the fried chicken industry’s No. 1 spot have instead backfired, threatening to further undermine its standing.

Cutting margins

The Ministry of SMEs and Startups announced Tuesday it would formally request that the Fair Trade Commission (FTC) refer Kyochon F&B, which operates Kyochon Chicken, to prosecutors over unfair practices.

The decision came after the ministry’s 30th mandatory referral review committee concluded that the company had abused its bargaining power to unilaterally slash the supply margins of a cooking oil distributor.

“When it comes to abusing bargaining positions, harsh penalties are necessary to protect small- and medium-sized enterprises [SMEs] and uphold social trust,” said Choi Won-young, head of SME policy at the ministry.

“A major domestic chicken franchise’s conduct harmed a small enterprise, so we determined strict measures were warranted to safeguard SMEs and public trust.”

Kyochon Chicken's logo is seen on the top of a branch in Seoul on Nov. 21, 2021. [NEWS1]

In 2021, Kyochon cut the margin on oil it sourced exclusively for franchise owners from 1,350 won ($1) per can to zero.

The company justified the move by pointing out that the supplier already profited significantly from collecting used oil, and insisted the new contract simply adjusted margins accordingly.

But last October, the FTC ordered Kyochon to pay 283 million won in fines and issued a corrective order to prevent a repeat offense.

Kyochon F&B countered that it did not unilaterally cut margins, arguing instead that the contract was made through consultations with the distributor.

“[The contract] was designed to boost our franchisees’ profits, not headquarters’,” a company official said. “We’ve already filed an administrative suit challenging the FTC’s decision in December last year, and we believe the court will clarify the facts.”

A sticker on a restaurant in Seoul on Jan. 22, 2025, indicates its availability on food delivery platform Baedal Minjok, commonly known as Baemin. [NEWS1]

Baemin deal draws controversy

Kyochon also stands at the center of a growing controversy around delivery platforms.

The company is pursuing a strategic alliance with Woowa Brothers, operator of Korea’s largest food delivery app Baedal Minjok, commonly known as Baemin. Under the proposed deal, franchise owners who opt out of rival platform Coupang Eats would enjoy lower fees and participate in joint marketing programs.

Kyochon maintains this is about giving shop owners more options.

“We’re doing this for franchisees who want to reduce their delivery fees, and we’ve already held explanatory sessions for them,” a company spokesperson said. “Any owner who wants to keep using both Baemin and Coupang Eats is free to do so.”

Still, critics argue that offering incentives on the condition of exclusivity hurts not just store owners, but also limits consumer choice.

An organization that represents business owners, loosely translated as the Association for Fair Platforms, released a statement saying: “President Lee Jae Myung himself pledged during his campaign to ban fee discrimination among delivery platforms. This kind of deal is clearly unfair under that principle.”

They warned that the agreement could violate fair trade laws, calling it a classic case of conditional exclusive dealing.

Actor Byun Woo-seok advertises Kyochon Chicken in these posts uploaded to the firm's Instagram. [SCREEN CAPTURE]

Struggle to reclaim top spot

Industry watchers say these aggressive tactics reflect Kyochon’s urgency to regain ground in an increasingly competitive market.

After dominating Korea’s fried chicken sector for more than a decade, Kyochon lost its No. 1 spot to BHC in 2022, then slipped behind bb.q in 2023, falling to third.

One reason was its decision to raise prices first. Back in 2022, Kyochon’s cost-of-goods ratio stood at about 83 percent, roughly 20 percentage points higher than rivals.

To protect margins and reinforce its premium image, it raised prices on signature menu items by as much as 3,000 won. While profitability improved, the price hike alienated many cost-sensitive customers, accelerating a decline in sales. Amid an economic downturn, the brand became synonymous with overpriced chicken.

Its strategy of favoring existing franchisees over rapid expansion also seems to have misfired. As of the first quarter this year, Kyochon had 1,359 outlets — far fewer than BHC or bb.q, which each operate close to 2,000. That smaller scale makes it harder for Kyochon to cut ingredient and logistics costs.

Meanwhile, competitors keep drawing new customers with an endless stream of fresh products, whereas Kyochon continues to rely on its core sauces like soy garlic, red chili pepper and honey.

In hopes of staging a comeback, Kyochon recently hired popular actor Byun Woo-seok as its new brand ambassador. The company is also banking on international growth to offset domestic stagnation. It now runs 83 stores in Thailand, Taiwan and Indonesia and is eyeing further expansion.

By contrast, Genesis BBQ, which owns bb.q, operates some 700 outlets across 57 countries, including the United States and Canada. Dining Brands, bhc’s parent company, has opened 29 stores mainly in Southeast Asia and the Americas.

“With the global popularity of K-food, barriers to overseas expansion have come down,” said Suh Yong-gu, a business professor at Sookmyung Women’s University. “It’s a smart way for food companies to overcome the limits of relying on Korea’s domestic market alone.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff. BY KIM KYUNG-MI [kim.juyeon2@joongang.co.kr]