Hanwha Galleria's lack of franchise experience may hinder Five Guys expansion

Five Guys restaurant in Gangnam, southern Seoul / Courtesy of Hanwha Galleria

By Kim Jae-heun

Hanwha Galleria's lack of experience in the franchise business may pose a barrier to the expansion of its newly launched Five Guys restaurant in Seoul, according to industry officials on Wednesday.

The upmarket Korean department store franchise, owned by Hanwha Group, has no previous track record of successfully operating a restaurant or coffee shop franchise. Its only coffee house chain, Beans & Berries, transitioned into a social enterprise in 2013 due to stagnant business and growing protests aimed at protecting local businesses against large franchise firms.

“Not having an experience of operating a successful franchise business for a long time and opening a new brand is really different from having experience and doing so,” a local retail firm official said. “Hanwha Galleria said the most important key in operating Five Guys is maintaining the quality and taste of its menu items. However, that requires long-time partnership experience and connection with local food suppliers in B2B business.”

Kim Dong-sun, the Head of Strategic Management at Hanwha Galleria, who is also the third son of Hanwha Group Chairman Kim Seung-youn and the person responsible for bringing Five Guys to Seoul, also lacks experience in operating a franchise business.

While Kim previously managed Chinese and Japanese restaurants in Germany and opened a high-end sushi bar in Seoul in 2021, running a restaurant franchise is an entirely different endeavor.

Kim Dong-sun, head of strategic management at Hanwha Galleria, right, shakes hands with William Pitcher, vice president of Five Guys International, at the signing ceremony to promote Five Guys' domestic business, in Seoul, Oct. 2022. Courtesy of Hanwha Galleria

On the opening day of the Five Guys' first restaurant in Gangnam, southern Seoul, Monday, Kim stimulated other fast food franchise businesses by saying there is no rival in the domestic market.

“It is good to be confident, but I think he was too excited when he made such a comment,” a local food firm official said. “With owner-risk issues becoming a hot potato in the local retail industry, Kim should speak less about specific detailed plans. He mentioned Five Guys Korea will not-at-all consider the localization of its menu items. I know that is a fundamental principle that Five Guys' headquarter sticks to, but such a strategy is important in maintaining the business here in the long term. Kim has to run the franchise business more flexibly.

“McDonald's was able to run its successful business in Korea for the last 35 years, thanks to its active efforts in menu localization. Shake Shack also achieved its goal to open 25 restaurants in Korea a year early, because it is continuously introducing new menus using local ingredients,” the official said.

A number of international franchise brands failed to settle in the local market in the past because they promised to avoid menu localization. U.S. family restaurant chains such as Denny's and LA Farms, which entered the Korean market in 1994, pulled out their business only three years after due to their headquarters' policy to stick to original menus.