The South Korean franchise market could not avoid the fallout from COVID-19 with the number of franchise brands that have cancelled their business registration exceeding that of those opening up in the first five months of this year.

According to data released by Fair Trade Commission last week, 654 franchise brands were delisted in the January-May period, outpacing 636 brands that were newly registered.

Delisting – or registration cancellation – does not necessarily mean a brand’s immediate exit from the market. However, delisted franchise brands are banned from adding new outlets for up to 60 days, meaning that a delisted franchise brand is not allowed to expand business and would face more chance to shut down.

Industry insiders expect that a resurgence of coronavirus infection cases in the country would force more franchise brands to go down this year. Restaurant franchises, in particular, have taken a severe hit from the virus-driven social distancing restrictions that have led people to avoid eating out.

This is in sharp contrast to a few years back when the number of new franchise brands steadily and rapidly increased regardless of economic ups and downs.

The number of franchise brands increased every year between 2012 and 2017 by minimum 8.9 percent and maximum 16.2 percent. In 2012, the number of franchise brands stood at 3,311 and reached 5,273 in 2016 and 6,000 in 2018. Many franchise brands have gone out of business but there were as many new ones opening, leading market growth.

However, its growth slowed down at 5.4 percent in 2018 when the country’s minimum wage surged. In 2019, there were only 301 new franchise brands versus the previous year growing at less than 5 percent. And then, the coronavirus outbreak this year has worsened the market condition.

By month, 150 franchise brands were newly registered in January and February while 17 cancelled registration in January and 67 in February. In March, 142 new franchise stores were listed while 134 were delisted. In April, 109 were newly registered while 353 cancelled. In May, only 82 franchise stores were listed and 83 cancelled.

By Baek Sang-kyung and Lee Eun-joo

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]