Fierce Franchise Market Sees Wave of Withdrawals from Franchise Business in First Half of Year

1,289 Franchise Registrations Canceled in the First Half of the Year
Includes Brands Like Knotted, Yoajeong, and Tiger Sugar

In the first half of this year, several mega brands that once led trends and aggressively expanded their influence, such as Knotted and Yoajeong, have withdrawn from the franchise business one after another. Brands that gained significant popularity before and after the COVID-19 pandemic are now shifting their strategies to focus on business viability rather than merely expanding their physical presence, as consumer preferences change.

According to the Franchise Business Transaction System of the Fair Trade Commission on July 9, a total of 1,289 companies withdrew their franchise disclosure documents and canceled their franchise business registrations between January and June this year. This is an increase of 3.5% compared to the same period last year. The number of companies newly registering franchise businesses was 677, a decrease of 9% from the first half of last year.

Registering a franchise disclosure document is a mandatory procedure for operating a franchise business. Cancellation of registration effectively means suspending the franchise business, while new registration indicates entry into the franchise sector. Over 80% of companies that canceled or newly registered franchise businesses were in the food service industry.

Last year, for the first time in nine years, the number of franchise headquarters registered with the Fair Trade Commission decreased. According to the Fair Trade Commission's franchise business transaction data, there were 8,758 franchise headquarters registered last year. The number of franchise headquarters has rapidly increased since the count began: from 4,736 in 2017, to 5,835 in 2020 when the COVID-19 outbreak occurred, 7,766 in 2021, 8,369 in 2022, and 9,114 in 2024. Although the number had steadily increased every year, it dropped by 3.9% last year compared to the previous year, marking a change in trend. In this context, the first half of this year saw an increase in franchise cancellations and a decrease in new registrations compared to last year.

Notably, companies that once sparked a dessert craze and shook up the market canceled their franchise registrations and switched to a directly managed model in the first half of the year, drawing attention. Café Knotted, which led the donut "open run" phenomenon, voluntarily canceled its franchise registration in April. In May, Yoajeong's "Yogurt Ice Cream Standard" was also listed as voluntarily canceling its franchise registration, and Tiger Sugar, the Taiwanese bubble tea brand that led the milk tea craze just before the COVID-19 outbreak, also withdrew from the franchise business.

Knotted, a premium donut brand founded in 2017, expanded to about 40 stores by 2024 through word of mouth. During this period, the company registered for franchise business and considered expanding through franchising but ultimately did not open any franchise locations, reverting to a directly managed system after internal review. A Knotted representative explained, "We proceeded with franchise registration during the process, but decided to operate mainly through directly managed stores due to the need for adjustments and the lack of business viability."

Since its establishment in 2020, the yogurt dessert brand Yoajeong has grown mainly through delivery platforms. However, the company determined that the growth of delivery-only stores was limited and is now focusing on café-style outlets. While Yoajeong initially expanded as a delivery-focused brand and operated around 180 stores, after the franchise headquarters operator changed in 2024, it began opening café-style locations, expanding to about 660 stores as of last month. As a result, the café-style franchise brand "Café Yoajeong" maintained its registration, while the delivery-focused brand "Yogurt Ice Cream Standard" canceled its registration. Currently, Yoajeong only provides information on opening "Café Yoajeong" stores on its official website.

A Yoajeong representative stated, "Profitability concerns were high due to commission fees and other costs associated with delivery platforms. Although Café Yoajeong still offers delivery, the business is now centered around in-store operations."

Tiger Sugar, which entered the Korean market in 2018, operated about 50 stores nationwide by 2020. However, as competition in the dessert market intensified and consumer interest in brown sugar drinks rapidly waned, the company ceased its franchise business. Currently, Tiger Sugar operates three locations in Seoul's Gangnam district, Pangyo in Gyeonggi Province, and Uijeongbu.

Large corporations have also started to reorganize their brand portfolios by revising their food service business strategies. In May, Eland Eats voluntarily canceled the franchise registrations of its Asian food brand "Asia Moon" and its Italian brand "Rimini." Currently, all but one of Rimini's 30 stores are directly managed, while Asia Moon operates one store, which is identified as a franchise. An Eland Eats representative said, "We aim to strengthen brand competitiveness by focusing on directly managed restaurants rather than expanding the franchise network. This is part of the process of adjusting our food service business portfolio, considering the market potential and operational efficiency of each brand."

Orga Whole Foods, which marks its 45th anniversary and is the origin of Pulmuone, also voluntarily canceled its franchise business registration in May, ending its offline franchise business. Pulmuone explained, "We have recently scaled down franchise operations step by step, taking into account changes in the distribution environment and the conditions for offline franchising. Going forward, we plan to realign our business strategy to focus on expanding external channels and online business."

Some companies have canceled franchise registrations this year after experiencing significant disruptions to their businesses. Korea Pizza Hut applied for corporate rehabilitation at the court in December 2024 after suffering financial difficulties following a loss in a lawsuit filed by franchise owners seeking the return of unjust enrichment. Since last month, the domestic operation has continued under a new franchise headquarters, PH Korea. Accordingly, Korea Pizza Hut re-registered its franchise under the PH Korea name in April, and the previous franchise registration was canceled in May.

Brands under Sunshine Food (formerly Didim ENF), such as Yeonan Sikdang, which sparked a cockle bibimbap craze, and Sin Mapo Galmaegi, known for its affordable skirt meat menu, also voluntarily canceled multiple franchise registrations in May. Sunshine Food experienced declining performance due to the slump in the food service industry after COVID-19, and after a change in its largest shareholder, its financial situation worsened, leading to its delisting from the KOSDAQ market in May.

Meanwhile, some brands that reached the limits of growth with directly managed stores, such as Dr. Robin and Popeyes, are now pursuing franchise business. Dr. Robin newly registered for franchising in February and opened its first franchise location in Seorae Village, Seocho-gu, Seoul, last month, just four months after registration. Yeokjeon FNC, which operates the domestic pub franchise Yeokjeon Halmae Beer, also newly registered its meal-oriented pub "Halmaek Red" for franchising in May, opening two locations in Yeouido and Sadang, Seoul. Jeongdon, a well-known donkatsu restaurant in Daehak-ro, registered for franchise business for the first time in 11 years in March and opened its first franchise store last month.

An industry representative stated, "As high inflation and the prolonged economic downturn persist, more food service companies are seeking to change their franchise business strategies. It is an important time to closely monitor consumer preferences and market changes and respond accordingly."

This content was produced with the assistance of AI translation services.