To dump or keep: Morgan Stanley in dilemma over Nolboo

By Park Jae-hyuk

Morgan Stanley Private Equity has failed to increase the corporate value of Nolboo as the restaurant franchise is valued lower than what the U.S. private equity fund paid for it seven years ago, according to industry analysts Tuesday.

Morgan Stanley bought the franchise for 120 billion won ($106 million) in 2011 from Kim Soon-jin, founder of the brand, known for food items including “bossam,” boiled pork belly, and “budae jjigae,” sausage stew.

However, the equity value of Nolboo is now estimated at 80 billion won due to its worsening profitability.

The company suffered a 3.2 billion won operating loss last year.

It was the first operating loss ever since Nolboo started disclosing its business performance in 2002.

The restaurant chain posted 101.5 billion won in sales last year, a 15.7 percent decline from a year earlier.

The number of stores it runs dropped to 708 last year from 905 in 2016.

Nolboo had once operated over 1,000 stores nationwide, when it was running 16 brands.

As of last year, the company owns 10 brands.

Against this backdrop, Nolboo set up a joint venture named “Taste of Seoul” recently after forming a partnership with Wolhyang, a pub chain selling traditional Korean drinks.

In November, they will open the first store serving North Korean foods in Incheon.

Although Nolboo has claimed Morgan Stanley is not considering selling the restaurant franchise for now, observers regard the establishment of the joint venture as Morgan Stanley's attempt to improve the image of Nolboo and sell it for a higher price.

“If consumers consider the joint venture as fresh, it will help Morgan Stanley sells Nolboo for a higher price,” a restaurant industry official said, who declined to be named.

Morgan Stanley has also replaced three chief executives of Nolboo since 2016, amid the franchise's worsening profitability.

In January, Ahn Se-jin took the position of Lee Man-jae, who had led the company since August 2017.

Before Lee's inauguration, Kim Young-cheol, who worked for McDonald's, Domino's Pizza and Mr. Pizza, managed Nolboo from February 2016.

However, experts cast a negative outlook for Morgan Stanley's efforts to enhance the value of Nolboo.

“As the government has tightened regulations on franchises and raised the minimum wage, restaurant franchises lost their popularity in the domestic M&A market,” said Suh Yong-gu, a professor of marketing at Sookmyung Women's University.

In 2015, Morgan Stanley tried to unload Nolboo but failed to do so, as the rising prices of ingredients after the MERS outbreak lowered its net profit at that time.

The professor, who is also the former chief of the Korea Distribution Association, said the failure shows the current situation of the nation's franchise industry, criticizing that too many Korean franchisers tend to enter the restaurant business.