The atmosphere in the burger market is good," says a recent comment from burger industry representatives. Last year, McDonald's Korea saw its sales increase by 11.8% compared to the previous year. During the same period, Burger King's sales increased by 6.4%. KFC Korea recorded its highest sales ever last year. The domestic brand Mom's Touch is no exception.
However, on the 24th, according to the distribution industry, Hanwha Galleria is considering selling the domestic business rights for the American premium burger 'Five Guys,' which it introduced in June 2023. Kim Dong-sun, the vice president of Hanwha Galleria and the third son of the Hanwha Group owner, led all the processes from the introduction to the contract.
Hanwha Galleria announced, "We are currently reviewing various measures to enhance the brand competitiveness of Five Guys with the global headquarters, but no direction has been decided yet." However, teaser letters have already been distributed to some private equity fund managers. The burger market atmosphere is said to be good, so why is Hanwha looking to sell Five Guys after just two years?
The distribution industry believes that this is primarily because selling premium burgers is not easy. Even if the domestic burger market is growing, competition is much fiercer than when fast food made its full entry into the domestic market in the 1990s. Burger King and KFC Korea operate under a structure that realizes 'economies of scale' and aims for high sales volume at low prices. Their strategy is to grow in size and reduce cost ratios to generate revenue.
However, it is not easy to achieve that with premium burgers. To generate revenue from premium burgers, they would either need to spread widely in the market like other burger brands to realize economies of scale or, if they have fewer stores, increase prices. This means that for premium burgers to realize economies of scale, they must become popular, which implies that the 'premium' strategy cannot be adopted. A distribution industry representative noted, "This is similar to why 'warm ice americanos' are impossible."
There is also the point that Five Guys is practically hard to recognize as a premium burger. From the perspective of a generation that frequently travels abroad, Five Guys is just a local franchise burger spot in the U.S. This implies that Five Guys is not on the level of a premium burger like 'Gordon Ramsay Burger.' It is vague whether they can enjoy a solid status as a premium burger amid consumer polarization.
A representative from the distribution industry commented, "It's become difficult to adopt a premium strategy just because something is imported from abroad. For example, Canadian coffee brand 'Tim Hortons' has deployed a premium strategy with high price policies in Korea, but it still hasn't been very effective for similar reasons."
In fact, it is also challenging to devise a strategy to lower prices while shedding the image of a premium burger. Considering the commission contracts with the U.S. headquarters and related head office policies for procuring raw materials, it is a challenging situation to adopt a strategy of lowering prices. FG Korea, which operates Five Guys, paid a commission of about 4.2 billion won to the U.S. headquarters, which is about 9% of last year's revenue (around 46.5 billion won). A representative from the food service industry noted, "With Five Guys' contract structure, it's also difficult to lower prices using coupons like Burger King does."
There are also evaluations that the food category of burgers itself is difficult to become premium in Korea. It's akin to ramen. This is similar to the market reaction when Harim launched its premium 'The Gourmet Ramen'. Even referring to ramen as premium simply means it's ramen. Professor Lee Eun-hee from Inha University stated, "The premium strategies in the food industry find it hard to be effective, and the burger category is no exception," adding, "People still see it as something for a quick meal."
Market evaluations of the fact that they are seeking to sell just two years after the launch are mixed. There is a perspective that they made a quick management decision. Kim Dong-sun, vice president of Hanwha Galleria, was involved from start to finish when bringing Five Guys to Korea. Under these circumstances, the decision of, 'We found out it's not easy, so we should sell it now for a reasonable price and not incur losses' could actually be a healthy decision.
A representative from the distribution industry commented, "Even when owners understand that there are problems, they often conceal them and package them until they reach a point where they can do nothing else. Changing direction to do another business while taking the responsibility for that decision is not easy. It's a courageous decision."
On the other hand, there are views that chaebols take new businesses too lightly. Since July 2021, Kim Dong-sun has personally operated a high-end Japanese restaurant named 'Sugamoto' but recently transferred ownership. Additionally, 'Yudong,' which gained attention for its 24-hour operation with robots making udon, closed just a month after opening. Recently, Kim Dong-sun introduced the ice cream brand 'Benson.'
Some evaluations claim, "They are sucking in renowned figures in the food service business like a black hole," while there are also opinions that frequent staff changes are common. Kim Dong-sun brought Baesung-woo, a former executive from real estate development company DS Networks, into Hanwha Galleria and started a food service business, but not long after, Baesung-woo resigned. The restaurant they co-created is 'Oyster Bay,' a specialized oyster restaurant at the 'Hotel The Plaza' in Jung-gu, Seoul.
A representative from the food service industry stated, "While Vice President Kim has brought many renowned individuals from the food service market and claims to be preparing several brands, it remains to be seen whether there will be results. For now, it is not the stage where the business center is determined and led as has been publicly recognized."