Posted : 2008-08-01 18:30
Updated : 2008-08-01 18:30

Struggling US Chains Find Consolation in Asia

Bennigan’s outlet in Seoul
By Jane Han
Staff Reporter

The sudden bankruptcy of the U.S. family restaurant franchise Bennigan's and the downsizing announcement of Starbucks have consumers in Korea wondering if popular foreign chains will soon start vanishing from the domestic scene.

The chains say no, adding Asia is considered one of the most lucrative markets by upper management. This seems true according to latest developments.

Starbucks might have suffered a third-quarter loss last year, but its international revenue rose 24 percent, far higher than its 6-percent growth in the United States.

Within three years, more than 40 percent of Starbucks outlets will be outside the U.S. from 29 percent now, BusinessWeek cited a company spokeswoman as saying.

The same goes for McDonald's. The fast food giant saw better-than-expected net profit in the second quarter thanks to strong international sales. Asia-Pacific sales jumped 8.8 percent, higher than just above 3 percent in the United States.

``I feel lucky to be part of the Asia team because we're posting pretty strong numbers unlike other parts of the world,'' said one executive of an international restaurant franchise, who asked not to be named.

So far so good, but the question is how long can it last?

Some critics say the domestic restaurant chain market is already nearing saturation.

Starbucks cafe in Seoul
McDonald's has the most branches in Korea with 231, followed by Outback Steakhouse with 100, T.G.I. Fridays 48 and Bennigan's 36.

None of them, however, seem to have aggressive expansion plans. Even Lotteria, the country's biggest fast food chain with 750 outlets, says no more stores for now.

``If we open more, one shop will eat into the profits of another,'' said Lotteria spokesman Chung Sung-hoon. ``We're now focusing on strengthening our existing locations.''

McDonald's, which used to run as many as 300 branches before downsizing, also has no plans to expand in the second half of this year. The company opened two new stores in the first half.

The Korean operations of Bennigan's, which claim to be ``totally separate'' from its bankrupt U.S. headquarters, is planning ``conservative additions.''

``We're considering adding about five more branches,'' said Bennigan's Korea spokeswoman Lee Sole-ip.

Industry experts, however, say they doubt such an expansion is likely to materialize.

``If you think about it, Korea is pretty small with a limited number of good locations for a big restaurant,'' said one source at a major restaurant chain. ``We keep hunting for more places to open, but all the good spots are taken.''

Business losses also show the difficult situation in the market. Aside from fast food chains, Bennigan's posted an operating loss of 1.2 billion won and TGI Fridays 7.9 billion won last year.

Industry insiders say many foreign restaurant franchises seek aggressive openings to increase brand awareness, but end up suffering from slow sales.

``Companies have to open up just to that one magical point and stop, or else it's downhill from there,'' said Lotteria's Chung.
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