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The fair trade regulator will ban the country’s leading fried chicken and pizza franchise companies from opening new restaurants in the vicinity of existing ones to secure stable profits for licensed restaurants. / Korea Times file

Chicken, pizza franchise stores to be banned from opening near existing outlets

Fried chicken and pizza franchises will be banned from opening new stores within 800 meters and 1,500 meters respectively from existing chain outlets. This comes amid mounting complaints about excessive business expansion, the state fair trade regulator said Thursday.

Such companies are also banned from forced remodeling or relocating licensed stores and the forced hosting of promotional events. The Fair Trade Commission (FTC) said the new regulations, which will take effect this month, are intended to create an environment for “fair trade and competition”.

In April, the FTC employed a similar policy for bakery franchises, ruling on a 500-meter radius from existing stores as a competition-free zone.

Five fried chicken companies are subject to the rule ― Genesis BBQ, GNS BHC, KyoChon F&B, Pelicana, and Nonghyup Moguchon. The two pizza companies to be regulated are Mr. Pizza and Domino’s Pizza. They all have more than 1,000 licensed stores across the country, according to the FTC.

The country’s third largest pizza chain Pizza Hut will be exempt since the U.S.-headquartered firm has suffered operating losses for three years in a row, it said.

The FTC mapped out the measure after learning that these companies are accused of placing new and existing stores shoulder-to-shoulder without consideration of their profitability by owners of licensed stores, officials said.

“By doing so, many existing stores suffer declining profits. It also makes it difficult for newcomers to have a stable launch,” the official said.

One fried chicken firm, though its name was withheld, has 85 stores in Seoul that engage in fierce competition and with at least one same-branded rival located less than 500 meters away. These chains have also come under fire since they force stores to upgrade the interior design, relocate to pricy yet well-exposed places, or host promotional campaigns without financial support. Those who refuse are denied contract extensions, the regulator said.

The FTC will mandate the companies change the interior design only once every seven years. It will also make them cover 20-40 percent of the required budget.

Approval from more than 70 percent of licensed stores will be required for the companies to launch a company-wide promotional campaign and they must make public the campaign-related budget in detail.

According to Statistics Korea, there were 27,238 fried chicken restaurants in the country as of October last year and 74.8 percent of them are franchised. By market share, Genesis BBQ enjoys a comfortable lead, followed by KyoChon F&B, Pelicana, Nonghyup Moguchon and GNS BHC. Mr. Pizza takes the largest market share in the domestic pizza industry with 395 stores, followed by Domino’s Pizza with 358 and Pizza Hut with 308.

Market observers say the number of fried chicken and pizza restaurants has been on a steady rise in recent years as more retirees take up small-sized dining businesses as an opportunity to earn a stable income in post-retirement life.

During this economic downturn, a growing number of early retirees have tapped into such entrepreneurial activities using their severance pay. Yet not all of them succeed. Many even see their livelihood collapse and lose their severance pay.

The FTC plans to unveil similar operation guidelines for franchise coffee shops in the third quarter of the year, and for convenience store chains in the fourth quarter. <The Korea Times/Park Si-soo>

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