More than 1,300 franchise brands have shut down their operations this year, reflecting a trend in the restaurant industry where companies are focusing on consolidating their businesses rather than expanding amid domestic economic slowdown and rising costs.
According to the Fair Trade Commission's franchise information disclosure system, a total of 1,345 brands canceled their franchise registration from January to August this year. This marks a 3.2% increase (42 brands) compared to the same period last year, which saw 1,303 cancellations. The disclosure document contains essential information about the franchisor's financial status, sales, and franchisee fees, and its cancellation indicates a halt in franchise operations, including the recruitment of new franchisees.
Recently, several major restaurant brands have appeared on the cancellation list. Lotte Wellfood voluntarily canceled the registration of its ice cream brand Natuur on August 4. After closing all its direct stores in March, the brand has now completely ceased operations, marking the end of its 28-year presence in offline retail since its launch in 1998. Lotte Wellfood plans to maintain the Natuur brand but will focus on selling finished products through large supermarkets and online channels.
The Taiwanese brown sugar milk tea brand Tiger Sugar, which once sparked a craze for 'open runs,' also canceled its franchise registration in May, retaining only a few direct stores as it downsized its operations. Tiger Sugar entered the South Korean market in 2018 and expanded to 52 locations by 2020, riding the wave of popularity for brown sugar drinks. However, as interest waned and competition in the café and dessert market intensified, the number of stores rapidly decreased.
E-Land Group's E-Land Eats also ceased its new franchise operations for the bakery brand Frangerie in July, restructuring its business to focus on direct stores. Additionally, brands like Gollak Tteokbokki, which expanded with a chicken and tteokbokki combination, and The Frypan, a chicken pub brand, also canceled their franchise registrations in April and June, respectively.
The recent wave of franchise closures in the restaurant industry is closely linked to declining profitability. According to a report by the Korea Rural Economic Institute, while sales of domestic restaurant companies increased by 41.4% over the past five years, operating costs surged by 46.7%. This rise in costs outpaced sales growth, causing the operating profit margin of restaurant companies to drop from 12.1% in 2020 to 8.7% in 2024.
The primary reasons for the cost increase include rising labor and ingredient costs. Notably, the proportion of ingredient costs within total operating expenses rose from 36.3% to 40.7% during the same period, placing a significant financial burden on both franchisors and franchisees. Despite an increase in sales, the structural challenges have led to a deterioration in actual profits.
A franchise industry insider stated, "The increase in franchise registration cancellations can be seen as a proactive restructuring and consolidation process by companies, but it also serves as a warning that the overall startup market is losing its self-sustainability. Immediate policy support is needed to stabilize raw material prices and alleviate fixed cost burdens."
* This article has been translated by AI.
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