PH Korea, the new franchisor of Korea Pizza Hut, officially launched on the 1st, setting in motion efforts to normalize the brand. Observers say the PH Korea system will only lead to brand normalization if it is preceded by practical co-prosperity measures with franchisees, improved store profitability, and a recovery of brand competitiveness that does not rely on discounts.
According to the industry on the 9th, PH Korea received court approval for a business transfer from the Seoul Bankruptcy Court in March. It completed the business transfer procedures at the end of May, moving the domestic Pizza Hut business under the PH Korea system. The existing Korea Pizza Hut entity will handle rehabilitation and liquidation, while PH Korea will continue to operate the domestic Pizza Hut brand and franchise business.
PH Korea is a joint venture established by Wintergold and K Clavis Investment to operate the domestic Pizza Hut brand. At the forefront of management, Cho Won-hong, who leads Wintergold, has been named chair of PH Korea's board, and Kim Jong-un, former head of sales at Korea Pizza Hut, has been appointed the inaugural CEO.
Cho previously served as chief marketing officer (CMO) at Hyundai Motor, and the company said he was involved in the premiumization of the Hyundai Motor brand and the launch and establishment of the Genesis brand. CEO Kim is a food and beverage (F&B) expert who has built 23 years of field experience in the dining franchise industry, including at Outback Steakhouse. PH Korea plans to leverage its on-the-ground experience and brand-rebuilding capabilities to build a franchisee-centered operating system.
◇ In talks with franchisees on co-prosperity measures as the new headquarters launches
With the launch of the new franchisor, concerns about business suspension have eased, but there are still many challenges to address. The most critical task is to produce practical co-prosperity measures with franchisees.
Earlier, Korea Pizza Hut ultimately lost a lawsuit filed by franchisees seeking the return of unjust enrichment. In Jan., the Supreme Court finalized a lower court ruling ordering Korea Pizza Hut to return 21.5 billion won in differential franchise fees collected from franchisees from 2016 to 2022. Differential franchise fees are a type of distribution margin in which the franchisor supplies raw and subsidiary materials to franchisees and receives more than an appropriate wholesale price. The court found that a specific agreement on receiving differential franchise fees is required between franchisees and the franchisor.
PH Korea said, "The controversy over differential franchise fees arose from some contracts signed before the Franchise Business Act's requirement to state such terms in contracts was established, and we understand that there are no legal issues with new contracts signed thereafter, which reflect the relevant clauses," adding, "Separately from that, under the new franchisor system, we are focusing on preparing co-prosperity measures that franchisees can feel. Specifics are being discussed with the franchisees."
Restoring Pizza Hut's market standing is another task. According to the Financial Supervisory Service's electronic disclosure system, Korea Pizza Hut's revenue last year was 74.84 billion won, down about 10% from the previous year. An industry official said, "It needs a retooling that boosts existing stores' sales and profitability and improves operational efficiency by trade area," adding, "With consumption centered on delivery now entrenched, franchisees' profitability cannot meaningfully improve unless order channels, delivery quality, and in-store operating expense are managed together."
◇ "Half-price pizza" alone has limits… brand rebuilding needed
The lever PH Korea can use right away is price competitiveness. For the month of June, Pizza Hut is running a "Half Price, Pizza Hut" promotion on its flagship menu item, the Super Supreme. It offers a 50% discount for weekday pickup orders and 40% for delivery orders, and on weekends provides a 1+1 pickup deal and an L+M delivery deal.
Discounts can be effective in defending order volume. With high inflation dampening dining-out spending, they can deliver immediate price benefits to consumers.
The problem is that discounts alone make it difficult to restore profitability. While discounts can help increase orders in the short term, they are not a solution for improving franchisees' actual profits. In particular, if a brand that has undergone rehabilitation relies excessively on price cuts, consumers may come to view it as a "brand you buy cheap."
An industry official said, "In the short term, hold on to consumers through discount promotions, but in the long term, raise product quality, menu competitiveness, ordering convenience, delivery service, and in-store experience together," adding, "Rather than leaning on past brand awareness, secure a new base of regular customers that fits the changed consumer environment."