Chicken 'hallyu' in offing

Genesis BBQ opened its first premium store in Zhengzhou, Henan Province, on June 13, 2012. / Courtesy of Genesis BBQ

Fried chicken franchises make inroads into overseas markets

By Lee Hyo-sik

Korea's fried chicken franchises are making inroads into foreign markets to find new sources of income as the domestic market approaches saturation point.

Tens of thousands of shops, affiliated with franchises and independently run, are offering almost identical chicken menus across the country.

A surge in the number of fried chicken restaurants over the past few years is largely attributed to a growing number of early retirees setting up shops with their severance pay. Many franchised or independent chicken stores are run by former salaried workers who voluntarily or involuntarily retired during the continued economic downturn.

In a bid to alleviate the increasingly saturated market, the government has banned large fried chicken franchises from opening new stores within 800 meters of existing chain outlets. According to Statistics Korea, there were nearly 27,300 chicken restaurants in the country as of 2012 and 75 percent of them were franchised.

Kyochon Chicken's store in Manhattan, New York Courtesy of Kyochon Chicken

With the excessive competition and tightening regulations, Korea's major chicken chains, such as Genesis BBQ, Kyochon Chicken and Pelicana, have set up a presence in the United States, China and Southeast Asia over the past few years.

Industry watchers say that these franchises have been performing better in their overseas ventures than their predecessors, such as Mexicana which expanded abroad in the 1990s and 2000s. The better-than-expected-performance is partly attributed to "hallyu," or the Korean cultural wave.

Consumers in many foreign markets, including China, are increasingly aware of not only Korea's pop music and films, but also its culinary culture. Many Koreans eat fried chicken with beer or have it delivered home for a late-night snack.

In addition, the Korean-style home delivery service and a variety of menus have helped the chicken franchises take root in foreign markets, they said.

BBQ leads the pack

Genesis BBQ, the country's largest fried chicken franchise founded in 1995, currently operates 350 stores in the United States, China, Vietnam and 27 other countries. The majority of shops were opened under a "master franchise" contract in which BBQ hands over the control of the franchising activities in a country to a person or an entity. In return, BBQ receives a certain percentage of revenue from its business partners.

The master franchising is a method employed by many franchise systems because it is easier to export brands, and increase the number of stores.

"We will open stores in 27 more countries, such as Britain, Russia and Canada, over the next five years through the master franchising contract. We plan to operate a total of 50,000 stores around the world by 2020," Genesis BBQ spokesman Park Seung-shin said. "We will then become the world's largest food franchise, surpassing MacDonald's."

BBQ first entered China in 2003 on expectations that it would soon become a major global consumer market. The company has continued to invest in the world's second-largest economy.

"We did not advance into China or other countries because of the saturated domestic market or state regulations. We headed overseas to find new markets and become a global brand," Park said. "We have been able to increase the number of stores abroad under the master franchising system. It takes more time to directly open and operate stores in foreign countries, as MacDonald's does."

In the early stages, BBQ struggled to make money in China and Southeast Asia. But the company recently began generating profits because its products and services became more popular among consumers.

"At first, we had a hard time doing business in China because Chinese consumers were not familiar with our home delivery service. They were not used to letting strangers inside the house. They were not accustomed to paying upon receiving the food either because they normally pay after finishing the meal," the spokesman said. But thanks to its persistent marketing campaigns, more and more Chinese consumers became aware of the convenience of the home delivery service and began using it, he said. These days, the home delivery accounts for up to 50 percent of sales, up from 10 percent 10 years ago.

The company has also begun making money in Vietnam, Malaysia and other Southeast Asian nations.

Park said BBQ has introduced menus tailored to consumers of each market. "To do so, we first need to completely understand the culinary culture of each market. For instance, Chinese prefer grilled chicken, while Vietnamese like to eat fried chicken with rice. Products and services that suit local tastes are our biggest success factor."

Runner-ups catch up fast

Kyochon Chicken, founded in 1991, has also been active in foreign markets from the U.S. to Thailand. The company currently operates eight stores in five countries and seeks to open 2,000 stores in 35 countries by 2023.

"In 2004, we first made inroads into the United States. We now own and operate four stores in New York and Los Angeles," Kyochon Chicken spokesman Kil Young-hwa said. "Under the master franchising contract, four stores under our brand are in operation in China, Thailand, Indonesia and Malaysia. We will soon open one in the Philippines."

Kil said the company will continue to expand its presence overseas to become a top global food franchise. "Thanks to hallyu, more and more foreigners are interested in Korean cuisine. This has made our fried chicken more popular among foreign consumers."

On top of the convenient home delivery system and diverse menus, Kyochon offers foreign consumers authentic fried chicken available in Korea. "This differentiates our menus from those of other franchises. In addition, we always use fresh and healthy ingredients. We do not prepare food in advance. We always make food upon order."

Pelicana, founded in 1982, now operates one store each in Malaysia and Mongolia and plans to open 50 in Asia by 2016.

"We opened two stores last year under the master franchising contract. We will open more stores in Malaysia and Mongolia," a Pelicana spokesman Lee Dong-sun said. "In addition, we will open shops in Cambodia, Singapore, China and the U.S. in 2014. In the past, we advanced into Shanghai, Hawaii and Saipan. But we failed to take root there because we focused mostly on Korean residents and opened shops directly."

Lee said it is important to find a reliable business partner in overseas ventures. "Pelicana has been participating in a number of food franchise trade fairs around the world to build networks with foreign companies. We also plan to run more test shops in China, following the one in the Jiangsu Province, in order to gauge consumer tastes and develop local menus ahead of our entry into China."

Nene Chicken, alarmed by larger rivals' overseas business, has been stepping up efforts to boost its business abroad. The company currently manages three stores in Singapore and seeks to open 10 more stores in Southeast Asia by 2014.

"We would like to let the world know more about Korea's fried chicken. Using our domestic success as a springboard, we would like to build a successful business model abroad," a Nene Chicken spokeswoman Kim Ah-rum said. "Thanks to our successful Singapore operation, we have been receiving inquiries from individuals and companies that want to open shops under our brand. We will conduct a thorough market research before making a move to new markets."

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