Fall of Mr. Pizza to affect Kyochon F&B's IPO
Founder and ex-Chairman of Kyochon F&B Kwon Won-gang speaks at his office in Seoul prior to his resignation in March 2019. / Courtesy of Kyochon F&B
By Kim Jae-heun
After South Korea's MP Group, which operates domestic pizza chain Mr. Pizza, is set to be delisted from the secondary Kosdaq market, the ouster is expected to have a negative impact on Kyochon F&B's planned listing in the second half of this year.
The key rationale is that like MP Group, Kyochon F&B is exposed to risk factors related to its owner family. MP Group Founder Jung Woo-hyun found himself in the center of controversy back in 2016 when he assaulted an office building security guard.
A year earlier, Kyochon F&B's senior executive Kwon Soon-cheol, a relative of Kwon Won-gang, chairman of the fried chicken franchise, also attempted to attack employees at the brand's restaurant in Daegu, reports said.
Interestingly enough, neither company said anything about the incidents despite calls from third parties to issue a sincere apology regarding repeated inappropriate actions connected to their owner families. Customers were boycotting the brands hurting their brand equity, positioning and profit.
In Mr. Pizza's case, one of its franchise owners committed suicide in March 2017 after alleging that MP Group had forced him to close the his branch. In the same year in June, Jung was prosecuted over his involvement in embezzlement and dereliction of duty. In January 2018, Chung was released on probation but the Korea Exchange decided to delist MP Group.
When Chung and his family promised to leave the company and not engage in the business, the exchange market suspended its decision and only stopped MP Group's stock trading. Investors of Mr. Pizza have reportedly faced losses over 30 billion won according to the industry.
Kyochon F&B's chairman was a bit more responsive as he stepped down from the position when the company faced heavy criticism after Kwon brought back his relative who was fired for attempted assault. In March 2019, the chairman made an official apology and left the company.
Unlike Mr. Pizza which has seen sales declining since 2017 due to the boycott, Kyochon F&B fared well in terms of risk management after it hired seasoned retail executive So Jin-se from Lotte Group.
Kyochon F&B Senior Executive Kwon Soon-cheol attempts to attack employees at the brand's restaurant in Daegu in this captured footage revealed in 2015. / Screen captured from YouTube
If Kyochon F&B successfully goes public, it will become the first franchise to be listed directly on the equity market. Other franchise firms like MP Group took an indirect way by merging with special-purpose acquisition companies.
There lies a tough road ahead for the fried chicken brand to get good marks for the evaluation it has to undergo as part of the screening process before an initial public offering (IPO).
Usually, franchise businesses are prone to changing market trends because of consumers' volatile preferences toward food and food-related services. Mr. Pizza and Pizza Hut that met success in the 1990s with their salad bar marketing, quickly lost popularity when people became tired of their menu items.
Popular franchise restaurants are often affected by changing trends in markets, according to officials.