Kyochon's IPO plan suffers setback over worker abuse

Kyochon F&B Chairman Kwon Won-gang

By Park Jae-hyuk

Kyochon F&B, the operator of Korea's largest fried chicken franchise Kyochon Chicken, is in trouble over its plan to list shares on the local bourse, following the shocking revelation of the owner family's misconducts, analysts said Friday.

The company has come under criticism after the belated disclosure of CCTV footage Thursday, which showed senior executive Kwon Soon-cheol attempting to attack employees at the brand's restaurant in Daegu in March 2015. He is a relative of Kyochon Chairman Kwon Won-gang.

The public anger at Kyochon was made worse as it was also revealed that the attacker had temporarily left Kyochon in April that year, but returned as an executive the following year.

Amid the growing criticism, the Kyochon chairman made an apology on Thursday and accepted his relative's resignation.

“I apologize to customers, franchisees and employees who suffered from my relative's assaults,” he said in a statement. “I will do my best to prevent a recurrence of similar worker abuse.”

Despite his apology, consumers began boycotting Kyochon.

Analysts say the recent scandal will negatively affect the food firm's initial public offering (IPO) which was planned to be done within two years at the earliest and three years at the latest.

Kyochon previously announced its IPO plan during the ceremony in March to mark its 27th anniversary. Mirae Asset Daewoo has been mentioned as a lead manager for the IPO.

“A company's credibility and morality are regarded as the two most important factors to pass the preliminary approval for a planned IPO,” an analyst said.

Analysts also point out that Kyochon's controversial delivery charge will be another negative factor as it leads to a decline in sales.

The franchiser has charged 2,000 won ($1.75) per delivery since May, citing the profitability of its franchisees.

However, controversy has risen over some Kyochon restaurants that unilaterally charged 4,000 won for delivery on weekends without any talk with the franchise headquarters.

Consumers began looking for affordable chicken, so some of Kyochon's franchised restaurants reportedly suffered a 50 percent decrease in their sales.

The specific data on sales decline will be available next year as Kyochon discloses its business performance once a year. In 2017, it posted 318.3 billion won in sales and 20.4 billion won in operating profit.

It has been usual for the nation's franchisers to have difficulties with listing on the stock market.

In April, Ediya Coffee decided to tentatively postpone its KOSPI listing.

Genesis BBQ tried to launch an IPO in 2012, but withdrew the plan due to the declining profitability.

MP Group, the operator of Mr. Pizza, is waiting for the Korea Exchange's decision about whether to delist the company from the Kosdaq market. The group has suffered falling profits since 2016, when founder Jung Woo-hyun was found to have abused franchisees.