BBQ's ESG issues feared to hamper overseas expansion

Genesis BBQ Chairman Yoon Hong-geun gives a speech during the company's 25th anniversary, at one of his company buildings in Seoul, on Sept. 1, 2020. Courtesy of Genesis BBQ

By Kim Jae-heun

Genesis BBQ (BBQ), the country's third largest fried chicken restaurant franchise, aims to expand its business overseas this year, particularly in the United States. But the company has shown a disappointing performance in environmental, social and governance (ESG) management, hurting its brand image among socially-conscious consumers and driving away some potential business partners.

On Jan. 13, the Fair Trade Commission (FTC) released a list of "100 Good Franchises," which does not include BBQ, headed by Chairman Yoon Hong-geun. To be eligible for the designation, a franchise operator should have offered their franchisees a discount of more than 50 percent in royalty fees for at least two months during the pandemic or exempt the franchisees from paying all royalties for one month, in 2021. Or, they must have reduced the prices of essential supply items to franchisees by 30 percent for at least two months in 2021.

However, BBQ met none of these requirements.

"It would have been good if we had made it onto the list. But we have been practicing our own social contribution activities, such as donating 300 million won to Africa, in 2021," a BBQ official said.

The antitrust watchdog said that BBQ was not even eligible to apply for the evaluation because it was given a correction order for violating the Fair Transactions in Franchise Business Act last April.

In addition, BBQ was caught refusing to extend its contracts with some of its franchisees, who then organized a collective action against the headquarters. The FTC fined BBQ a 1.53-billion-won ($1.28 million) penalty for the malfeasance.

Customers wait for their orders at a BBQ restaurant on Honolulu, Hawaii, on Nov. 16, 2021. Courtesy of Genesis BBQ

Ongoing lawsuits the company has with rival BHC over contracts concerning chicken sauce, powder and other supplies, have also been dragging down BBQ's brand image, as it has continued to lose in these legal battles against the nation's second-largest fried chicken franchise.

Last November, the BBQ chairman was accused of defaming and obstructing BHC's business. BHC argued that Yoon was behind the scandal, in which he hired 10 influencers on social media and paid them to produce malicious reviews about BHC menu items.

Yoon was suspected of embezzling 10 billion won in company funds to pay his children's tuition fees in 2018. Prosecutors dropped the case, citing a lack of evidence.

"Marketing is another important tool when it comes to a fairly unknown company entering an overseas market. In particular, if a franchise operator wants to run restaurants under its direct management, the importance of the company's reputation becomes a greater factor," an industry official said.

Looking at the number of scandals and controversies that BBQ has gone through in the past few years, it is apparent that the franchise firm has done little, at least in Korea, the official said.

"If Yoon keeps getting into lawsuits, these can turn into an owner risk and affect the company. Governance is one of the three criteria of ESG management principles, and it is never good for BBQ to appear in reports tarnishing the franchise's brand image," an industry official said.

BBQ operates 97 restaurants in 18 states in the United States as of September of last year, including New York, New Jersey, California, Texas and Hawaii. The fried chicken franchise plans to open 50 more there this year.

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