Franchise Brands: Only 80% Remain After 3 Years of Opening

Seoul City Analyzes 2019 Franchise Business Disclosure ... 'The Born Korea' Has the Most Brands
Average Startup Cost 132 Million KRW ... 1 in 2 Locations Has Fewer Than 10 Franchise Stores

[Asia Economy Reporter Jo In-kyung] As of the end of last year, Seoul had 1,900 franchisor headquarters and over 2,470 brands registered, with the franchises they operate totaling approximately 163,000 nationwide. The average brand survival rate was 93.4% one year after opening but dropped to 79.4% after three years.

According to the "2019 Seoul Franchise Analysis Results" announced by the Seoul Metropolitan Government on the 18th, there were a total of 1,900 franchisor headquarters, 2,467 brands, and 163,338 franchise stores (nationwide distribution) registered in Seoul. These figures are based on the status registered in the franchise business disclosure documents.

By industry, the food service sector (Korean cuisine, franchises, etc.) showed the highest proportion in all areas: franchisor headquarters (65.6%), brands (67.0%), and franchise stores (36.4%). The wholesale and retail sector (convenience stores, cosmetics, etc.) had more franchise stores compared to the number of headquarters and brands, which is interpreted as a trend toward large corporations in the wholesale and retail industry.

Compared to nationwide data (5,175 franchisor headquarters, 6,353 brands, 254,040 franchise stores), 36.7% of franchisor headquarters, 38.8% of brands, and 64.3% of their affiliated franchise stores were registered in Seoul, showing an increasing trend every year.

By industry, over the past three years, the number of franchisor headquarters, brands, and franchise stores in the service sector (education, beauty, lodging, pharmacies, etc.) and food service sector showed a slight increase. Meanwhile, the wholesale and retail sector saw a decrease in franchisor headquarters and brands but an increase in franchise stores.

Also, one in five franchisor headquarters (21.1%, 400) was located in Gangnam-gu, followed by Seocho (9.9%, 188), Mapo (8.6%, 164), Songpa (7.8%, 148), and Yeongdeungpo (5.1%, 97). Most franchisor headquarters (85.7%) were corporate businesses.

As of 2019, among franchisor headquarters registered in Seoul, The Born Korea Co., Ltd. operated the most brands with 22, and also had the highest number of franchise stores at 1,341. The second highest number of brands was held by E-Land Eats Co., Ltd. (12) and Playtime Group Co., Ltd. (12), while in terms of franchise store numbers, Hulala Co., Ltd. (480) and E-Land Eats Co., Ltd. (210) followed.

Looking at brand survival rates, the average was 93.4% in the first year after opening, 82.0% in the second year, and 79.4% in the third year, showing a declining trend. By industry, wholesale and retail had a high survival rate of 94.1% in the first year and 91.3% in the third year. The food service sector had 93.5% in the first year and 77.7% in the third year, indicating that more than two out of ten food service businesses close within three years. The service sector had 93.1% in the first year and 82.2% in the third year.

Additionally, among the 2,467 brands registered in Seoul, 1,348 brands?more than half?did not operate any directly managed stores. Especially among the 345 newly registered brands last year, 257 (74.0%) did not operate direct stores. By industry, only 1.5% and 1.2% of brands in the service and food service sectors respectively had 25 or more directly managed stores, whereas wholesale and retail had a relatively high rate of 26.4%.

Brands with 100 or more franchise stores accounted for 10% of the total 2,467 brands, numbering 246. Brands with fewer than 10 franchise stores made up 58.5%, totaling 1,442.

The average startup cost for a franchise store was 132.42 million KRW. Among this, the franchise fee was 11.37 million KRW, the deposit was 4.8 million KRW, and training fees were 3.38 million KRW. The largest portion was other costs such as interior and equipment expenses, amounting to 112.86 million KRW.

Regarding the "difference franchise fee," also known as logistics margin, which was added as an item in the franchise business disclosure documents last year, only 752 brands (30.5% of the total 2,467 brands) responded that they had it. The difference franchise fee is the price difference between the price at which the franchisor purchases goods and the price supplied to the franchisee for products, raw materials, and ingredients.

The Seoul Metropolitan Government plans to conduct a field survey in the second half of the year, as there may be discrepancies in actual situations due to differences in perception between headquarters and franchisees regarding the calculation method of this item.

This content was produced with the assistance of AI translation services.