36% of Franchise Headquarters and 37% of Brands Concentrated in Seoul... Startup Cost is 127.05 Million Won

Last Year Seoul City Franchise Status Announcement
Survival Rate of Directly Operated Brand Stores 20% Higher Than Non-Operated, Stable Operation Possible Through Know-How Transfer

[Asia Economy Reporter Lim Cheol-young] It has been revealed that 35.6% of nationwide franchise headquarters, 37.4% of brands, and about 163,000 out of 259,000 franchise stores, accounting for 63%, are registered under headquarters and brands located in Seoul. Additionally, it was found that starting a franchise store in Seoul requires an average of 127.05 million KRW.

On the 28th, the Seoul Metropolitan Government announced the operational status of 'Franchises in Seoul in 2020,' analyzing the franchise business disclosure documents containing this information. As of the end of last year, there were 1,996 franchise 'headquarters' registered in Seoul, 2,654 'brands,' and the 'franchise stores' operated by these brands reached 163,145.

Compared to the nationwide total of 258,889 franchise stores, 35.6% of headquarters and 37.4% of brands were registered in Seoul. Also, 63% of the nationwide franchise stores were headquartered in Seoul. By industry, the food service sector had the highest number of headquarters, brands, and franchise stores compared to other sectors.

In particular, franchise headquarters were concentrated in Gangnam. One out of five headquarters (20.7%, 413) was located in Gangnam-gu, followed by Seocho-gu (9.1%, 182), Songpa-gu (9.1%, 181), and Mapo-gu (7.7%, 154). 85% of franchise headquarters were corporate entities.

The franchise headquarters operating the most brands is currently Hoolala, managing 24 brands and 465 franchise stores. Next is Theborn Korea, operating 22 brands and 1,423 franchise stores.

The survival rate of brands by years since franchise business start was on average 92.9% after 1 year. It was 75.3% in the 2nd year, 63.8% in the 3rd year, and dropped to 51.5% after 5 years, meaning only one out of two survives.

By industry, the 'service sector' had the highest survival rates: 93.3% (1st year) → 65.3% (3rd year) → 62.3% (5th year). The food service sector, where startups by lower-income groups are concentrated, had relatively lower survival rates: 92.8% (1st year) → 63.8% (3rd year) → 49.1% (5th year).

The survival rate also differed depending on whether the brand operated direct management stores. Brands operating direct management stores had survival rates of 97.2% (1st year) → 72.7% (3rd year) → 61.5% (5th year), whereas non-operating brands had 89.9% (1st year) → 55.7% (3rd year) → 41.3% (5th year), showing about a 20% difference after the 3rd year. This is interpreted as headquarters applying the know-how gained from operating direct management stores to franchise stores, helping stable operations.

Brands with over 100 franchise stores accounted for 8.9% (237) out of the total 2,654 brands. This decreased compared to 10% last year, while brands with fewer than 10 franchise stores increased slightly to 60.4% (1,604) from 58.5% last year. This is attributed mainly to franchise scale downsizing due to economic recession and the absence of minimum operating franchise store number restrictions upon new registration.

The average franchise startup cost was 127.05 million KRW, slightly down from 132.42 million KRW in 2019. The franchise fee (joining fee) accounted for within 10%, and other costs such as interior and equipment expenses made up 84.7%. Among other costs, interior expenses accounted for 41.3%, the largest single item.

By industry, startup costs were highest in the service sector at 192.97 million KRW, followed by wholesale and retail at 155.34 million KRW. The food service sector was 98.14 million KRW, down from 103.96 million KRW in 2019. Specifically, PC rooms cost 164.31 million KRW, chicken restaurants 60.74 million KRW, and coffee shops 113.75 million KRW.

The percentage of brands charging 'differential franchise fees'?fees imposed by headquarters on essential or recommended purchase items such as raw materials?dropped sharply from 30.5% in 2019 to 7.2% last year. This is seen as an effect of the mandatory disclosure of differential franchise fees in the disclosure documents since 2019, aimed at resolving chronic issues such as excessive profit-taking by headquarters from small franchise stores.

Han Young-hee, Seoul City’s Labor, Fairness, and Coexistence Policy Officer, said, “Despite the prolonged COVID-19 pandemic and poor economic conditions, the number of prospective entrepreneurs preparing to start franchise brands and stores is increasing as they seek new breakthroughs. In such circumstances, unprepared startups can cause greater difficulties. Seoul City will continuously provide accurate industry trends and reliable data to help prospective entrepreneurs prepare for startups and operate effectively.”

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