Why Do Korean Restaurant Brands Often Fail Overseas?
As we all know, Korean soft power is taking over the world these days with K-Pop, and K-Dramas. Consumers around the world view Korea very favorably and think it is a “cool” country. Korean cuisine, especially BBQ, is also growing in key Asia Pacific markets and the USA. This should be an ideal time for Korean restaurant brands to prosper in international markets but there have been very few success stories to date.
Of course, we can applaud the efforts of groups like SPC that are willing to take big risks outside of Korea to grow brands like Dunkin and Paris Baguette. Approximately 10% of the 3600 Paris Baguette locations are now outside of Korea and this number is growing rapidly through a franchise model.
Korean restaurant brand operators face a very mature local market with limited to no growth in consumer expenditure and many chain founders we speak with are keen to take some risk and develop their concepts overseas. However, they face many self-imposed barriers that limit their opportunities. While we can easily see many Korean concepts in key international cities these days, the majority of these operators are either Korean immigrants or second generation Koreans.
Gen Korean BBQ in the USA is a good example of this phenomena. Founded by two Korean immigrants in 2011, this chain offers all you can eat service and has expanded to more than 30 locations to date. The company raised $43 Million in 2023 and is a public company trading on the USA NASDAQ exchange. The founders see potential for as many as 250 locations across the country. Having spent time in America, they were able to understand the habits of local consumers and fine tune their offerings to reduce their risks. Also, all locations are company owned which allows them to control all aspects of their operations.
What are some of reasons Korean restaurant brands are failing overseas?
Lack of International Mindset
Jollibee is a company based in the Philippines that is not afraid to take the risk of buying brands in overseas markets? Why have Korean brands not adopted this strategy to grow overseas? I think it all comes down to the management of the company. Most English speaking managers with good educational backgrounds tend to work for the Chaebol firms. English capabilities in Korean foodservice companies tend to be very low. The Heads of their International Divisions tend to have little international business experience and are simply not capable of developing an overseas M&A strategy and then selling the idea to their President. Also, most foodservice companies tend to rely on a local model that sells individual franchises to retired businessmen or young couples. Many have no real knowledge about the international marketplace. On the other hand, Tony Tan, the founder of Jollibee, spoke English and was well travelled.
Naturally we can point to the great Korean entrepreneurs who built Samsung, Hyundai LG, and others. Their main strength was in manufacturing not service businesses.
Lack of Flexibly
Jollibee has always been very flexible and adaptable to local conditions overseas. They usually stuck with the Philippines game plan in the beginning but adjusted rapidly if they suffered large financial losses. From my experience, Korean managers are less flexible and more stubborn in their approaches to international business. They are a product of their insular culture – the so called “Hermit Kingdom.”
Several Japanese companies are now aggressively expanding overseas with their brands and also looking at M&A options in selected markets. Toridoll Holdings (Marugame Seimen), has been investing in restaurant concepts in Hong Kong, Europe and the USA to diversify beyond their Japanese style noodle base. Ippudo has become the most famous ramen chain in the world with their overseas expansion and the same can be said for Coco Ichibanya in the curry rice sector.
Lack of Strong Operating Systems & Support
Many Korean chains have very rudimentary operating systems which are insufficient for international expansion. This usually involves everything from supply chain, menu management and cost analysis to basic foodservice technology. There are also insufficient personnel in the Korean HQ to support the local franchisee in the host country.
Trust Only Korean Partners
I have encountered this problem time and time again when working with Korean restaurant groups. They have a bias to work with Koreans who are living in foreign companies mainly due to trust and language issues. The large majority of these deals fail from my experience as the local Korean partners lack both operating experience and sufficient capital. Until Korean groups can reach out to proven local multi-unit operators in these markets, their probability of failure is very high. These groups need to hire experienced international restaurant executives from other global chains who are fluent in English and preferably one other foreign language. They understand the infrastructure and systems requited to succeed abroad.
In summary, there is an enormous opportunity for Korean restaurant chains who want to pursue growth through international development. Brands that are willing to change their mindset, be flexible & humble, and seek out good local operating partners can compete and succeed in global markets.
