Why popular F&B franchises flounder after going public
Theborn Korea CEO Paik Jong-won hits a drum during an event to mark the listing of the company at the Korea Exchange in Seoul's financial district of Yeouido, Nov. 6. Yonhap
The lackluster performance of restaurant franchise company Theborn Korea on the main Korean bourse has raised concerns among food and beverage (F&B) franchises that plan to go public in the coming months, industry officials and analysts said Wednesday.
Doubt has emerged as shares of Theborn Korea have slid more than 11 percent since Nov. 6, when it debuted on the benchmark KOSPI at an initial public offering (IPO) price of 34,000 won ($23.57).
The logos of franchise brands operated by Theborn Korea worldwide / Captured image from Theborn Korea website
The company, widely known for its CEO, Paik Jong-won, a star restaurateur, drew keen attention in the IPO market as it grew large enough to run 25 dining franchise brands nationwide after it began as Hansin Pocha, a small Korean-style pub, in the early 1990s. Paik has earned a reputation as a celebrity chef after hosting and appearing in multiple TV shows.
Market observers said a string of franchises in the F&B sector have failed after going public and that such failures may repeat unless they identify and overcome their shortcomings.
“Public fame does not guarantee a brand’s success when going public, but F&B companies do not seem to understand such a rule,” Jung Eui-jung, who heads the investors' rights group the Korean Stockholders' Alliance, said.
A fried chicken franchise shop of KOSPI-listed Kyochon F&B in Hangzhou, China / Courtesy of Kyochon F&B
Jung pointed out that, besides Theborn Korea, Kyochon F&B is the only food company that remains on the stock market after it debuted in 2020. The company is known for its namesake fried chicken franchise.
All other industry peers were suspended or delisted after going public.
Among them was Taechang Paros, which listed its shares on the secondary Kosdaq through backdoor listing in 2007 following the success of its pub franchise “Joki Joki.” The company, however, was delisted in 2015.
The operator of the franchise coffee brand Hollys, Hollys F&B, made its debut through backdoor listing in 2008 but withdrew from the market a year later.
Homegrown chicken sandwich franchise brand Mom’s Touch was listed on Kosdaq through backdoor listing in 2016 but voluntarily applied for delisting in 2022.
A wider range of companies, including Cafe Bene, Ediya Coffee and BBQ Chicken, even dropped their IPO plan after seeking to capitalize on their respective brand’s success.
“Investors prefer a system where profit is centralized at the franchise firm’s headquarters, whereas the headquarters constantly faces demand from its retail franchisee owners to share the profits,” Jung said. “Investors thus turn away from the firm after judging that they may not be able to reap profits as they intended.”
Corporate data tracker CEO Score views the fast-changing nature of the dining industry as the main reason why shares of F&B franchise firms are unstable and unprofitable.
In a recent report, it pointed out a franchise company lasts five years on average, saying “Such short-lived operation makes investors hesitant in long-term investment.”
CEO Score also said excessive reliance on the CEO for success works against F&B companies when he or she is embroiled in disputes or rumors.
For instance, Paik was recently caught in a controversy involving his canned ham products, which faced consumer complaints for being relatively expensive for their quality.
Some accused Paik of inflating the original price to create the illusion of a larger discount. Theborn Korea took a hit, and its share price fell for several days following the accusations.