Calisco vs. KFC... Taco Bell's Uneasy Coexistence

KFC Korea Becomes Taco Bell’s Fourth Local Operator
Gangnam Store to Open on the 17th
Joint Operation with Calisco for Now
Challenges Remain in Localization and Value for Money

The Mexican franchise brand Taco Bell is making another bid for a comeback in South Korea by switching its local operator for the fourth time. The new partner is KFC Korea, which has signed an additional contract while maintaining the existing master franchise (MF) agreement with Calisco. As a result, the two companies are expected to operate Taco Bell together for the time being, leading to an "uneasy coexistence." The food service industry anticipates that KFC Korea will pursue aggressive store expansion and the development of localized menu items. However, there are still doubts as to whether Taco Bell can secure a meaningful presence in a domestic dining market dominated by Korean cuisine, chicken, and hamburgers.

According to industry sources on September 5, KFC Korea will open the Taco Bell Gangnam branch near Teheran-ro in Gangnam-gu, Seoul, on September 17. This will be the first store to open since KFC Korea signed a Taco Bell MF contract with Yum! Brands, Taco Bell’s parent company, in April.

Exterior view of the 'Taco Bell The Gangnam' store. Taco Bell

Taco Bell’s Persistence... Another Dual Master Franchise Structure

The most notable feature of this contract is that Taco Bell will be operated under a dual MF structure with Calisco. Typically, a single MF contract is the norm in order to maintain consistency in menu, marketing, and pricing policies. While a dual MF can enable rapid expansion, it also poses risks in terms of brand management, such as competition between MFs. Dual MFs have been used in large countries or those with significant regional cultural differences, such as China or India, but this is an unusual case in the Korean market.

An industry insider explained, "It’s rare to see a dual MF structure in Korea. It appears that Yum! Brands opted for this approach again as the existing partner continued to underperform."

Taco Bell first entered the Korean market in 1991, but failed to establish itself, changing operators three times. Dongshin Food, which operated Pizza Hut Korea, opened the first store in Seocho-dong, but withdrew in the mid-1990s due to low brand awareness and unfamiliar menu items. Later, a special purpose company, M2G, opened a store in Itaewon, Seoul, in 2010, but also failed to expand. During this period, Yum! Brands brought in Calisco, a subsidiary of Ourhome, as a second operator in 2014, and Calisco has continued to operate Taco Bell to this day. The number of stores has remained at around 10.

Currently, there are a total of nine Taco Bell stores in Korea. Starting with its first store in Yeongdeungpo Times Square in 2014, Calisco expanded to 15 stores by 2019, but this number dropped to 11 after the COVID-19 pandemic. This falls far short of the original goal of opening 50 locations.

The Reasons Behind Ji Eun Koo’s Calisco Failure

The Taco Bell operation under Calisco faced structural limitations. The first issue was a lack of localized menu items. While global QSR brands introduced Korean-style offerings such as bulgogi and spicy chicken, Taco Bell insisted on "authentic Mexican" cuisine. In Korea, where rice and bread are the main staples, tacos were perceived as unfamiliar and failed to resonate with consumers.

The second issue was poor value for money. Portion sizes were small relative to price, and Taco Bell struggled to compete with strong alternatives like chicken, Korean snack foods, and hamburgers. Expansion was also limited. Calisco was established by Ji Eun Koo, vice chairwoman of Ourhome, as an independent food service company before her return to Ourhome management, in accordance with the late Ourhome chairman Ja Hak Koo’s succession principles. Due to limited capital, Calisco was hesitant to invest in logistics and marketing, and the number of stores did not increase. As a result, consumer touchpoints remained limited and brand loyalty failed to develop.

Taco Bell menu photo. Taco Bell official website

Franchise Expansion Expected Next Year... Private Equity Risks Remain

After Calisco’s contract ends, KFC Korea will be able to secure exclusive operating rights for Taco Bell in South Korea. According to Orchestra PE, Taco Bell will be able to start franchising once its sixth directly operated store opens. Full-scale franchise expansion is expected to be possible from the end of next year.

Industry observers believe that sharing KFC Korea’s logistics network and marketing capabilities could enable rapid business expansion. Since both KFC and Taco Bell are brands under Yum! Brands, there are cases in the United States where Taco Bell and KFC operate as co-branded stores in the same building. In particular, KFC Korea’s experience could enable diversified distribution strategies, such as partnerships with delivery platforms and the launch of ready-to-eat meals.

However, the fact that KFC Korea is a portfolio company of the private equity fund Orchestra PE is considered a risk. Private equity funds are organizations whose goal is to rapidly increase corporate value and recover their investment in a short period of time. While this can be positive in terms of injecting growth capital, a focus on short-term results for the sake of a sale could damage brand value. In fact, KFC Korea has been put up for sale. There are concerns that Taco Bell could simply become a "tool for inflating valuation." There is also a possibility that quality control or consumer experience could be sacrificed during the expansion process.

Kentucky Fried Chicken

Korea’s Dining Market Offers Many Alternatives... Menu and Pricing Strategy Are Key

It is also seen as difficult to respond to the unique characteristics of the Korean dining market. The Korean food service market offers a wide range of alternatives, including Korean, snack foods, Japanese, and Chinese cuisine. Although Mexican food has become more mainstream than in the past, it is still limited to a niche audience. The fact that there are many more familiar and generous alternatives at similar price points is cited as one of the main barriers to Taco Bell’s success.

Some argue that Taco Bell must adopt a clear strategy between fast food and specialty restaurants. The three main Mexican and Tex-Mex franchises that have established themselves in Korea are On the Border, Dos Tacos, and Vatos. On the Border and Vatos emphasize authenticity and experiential dining, while Dos Tacos is known for value for money and delivery-friendly options. Taco Bell is urged to dominate the category of easy and quick Mexican food with the speed and pricing of a QSR.

An expert familiar with franchising explained, "Taco Bell has faced the high barriers of the Korean dining market multiple times, but with the rapid spread of trends and Korea’s suitability as a ‘test bed’ for the Asian market, it could not give up on the country. Simply highlighting the exotic experience will no longer work; it will be crucial to carefully design menu and pricing strategies that make Taco Bell an everyday choice."