Can food and beverage franchises overcome market skepticism over IPOs?

People walk by an alley filled with restaurants in Myeong-dong, Seoul, in this May 2023 photo. Newsis

Large food and beverage franchises in Korea are resuming efforts to go public this year. But market observers are skeptical about their potential for success, in light of the economic downturn and the ongoing series of unsuccessful initial public offerings (IPOs) within this sector.

Theborn Korea, a food franchise business established by culinary celebrity Paik Jong-won, announced last month that it will initiate IPO proceedings. Initially, the company aimed to go public in 2018 but postponed the process due to the COVID-19 pandemic.

After experiencing a resurgence in sales growth, Theborn Korea is contemplating a renewed attempt to pursue an IPO. In 2022, sales surged 45 percent from the previous year to 282.2 billion won ($212 million).

Hollys Coffee, a franchise of KG Hollys F&B, is also targeting an IPO within this year. After reaching out to major securities firms in September to gauge their interest in serving as underwriters, Hollys Coffee, one of the top five coffee franchises in Korea, temporarily suspended the process. But starting this month, it resumed steps to become the first coffee franchise to be listed on the Korean stock market.

Similarly, the Genesis BBQ Group, which operates BBQ Chicken, is expected to pursue an IPO within this year, buoyed by a steady rise revenues and the number of franchises. In 2022, revenue rose 15.6 percent from the previous year, reaching 418.8 billion won, and the number of its outlets around the world surpassed 2,000.

A BBQ Chicken restaurant in Vancouver, Canada / Courtesy of Genesis BBQ

To date, franchise businesses have struggled to be listed on the stock market, despite multiple attempts by various companies. The main hurdles include difficulty in expanding the number of franchisees within the domestic market and fluctuations in earnings.

Chicken burger chain Mom's Touch, which was successfully listed on the junior Kosdaq in 2015, chose to delist voluntarily six years later. Kyochon F&B, which went public in November 2020 at an initial offering price of 12,300 won, has seen a significant decline in its share price due to falling performance, and now trades at around 7,000 won. Other domestic coffee franchises, such as A Twosome Place and Ediya Coffee, have also made attempts to go public, but have faced consistent difficulties.

However, the recent initiatives of food companies to expand operations beyond the casual dining business, along with vigorous expansions into overseas markets, have enhanced their competitive edges and boosted their corporate values.

Stock market listings offer these companies essential investment capital to pursue opportunities overseas and diversify into new sectors.

Still, the downturn in the food service industry is casting doubt over the feasibility of IPOs.

"Although the food service industry has shown signs of a recovery following the pandemic, the combined pressures of high inflation and weakened consumer sentiment have dimmed the market's overall prospects," an industry source said. "Launching IPOs in the absence of guaranteed growth could make achieving a fair valuation for the company challenging. Such a scenario could negatively affect their ability to raise funds."