Domestic Restaurant Franchises Beset by Internal and External Pressures... Record-High 14% Closure Rate [Stalled K-Franchises]

Korea’s restaurant franchise industry is being pushed to the brink as three major pressures converge: a prolonged slump in domestic demand, lawsuits over margin-based franchise fees (distribution margins), and tighter regulation under the Fair Transactions in Franchise Business Act. Over the past five years, the closure rate of restaurant franchise outlets has set a new record high every year since statistics began, and the number of franchisors has reportedly declined for the first time. At this pace, the number of franchise outlets shutting down this year could exceed 30,000. In contrast, Chinese food franchises are seizing this opening and posting remarkable growth in the Korean market.
According to data on franchise transactions released on the 15th by the Korea Fair Trade Commission (KFTC), the closure rate of domestic restaurant franchise outlets reached 13.7% last year, the highest level since such statistics have been compiled. The closure rate stood at 10.7% in 2021, 11.4% in 2022, 12.6% in 2023, and 13.4% in 2024, marking five consecutive years of increases through last year.
The number of franchise headquarters also recorded its first-ever decline since data began to be collected. Last year, there were 8,758 franchisors, down 356, or 3.9%, from 9,114 the previous year. A franchisor is the company (head office) that designs the franchise business, grants franchisees the right to use its brand, provides business know-how, and oversees and manages the overall brand. The current crisis facing Korea’s franchise sector largely stems from a combination of factors: weak domestic demand, lawsuits over margin-based franchise fees, and stronger regulation under the Fair Transactions in Franchise Business Act. According to Statistics Korea’s Korean Statistical Information Service (KOSIS), the retail sales index, which reflects consumer purchasing power and is based on 100 in 2020, fell from 105.5 in 2022 to 101.9 in 2024, and stood at 100.3 as of January 2026. In effect, consumers’ retail purchasing power has retreated to a level similar to the period when the economy was hit directly by COVID-19.
Meanwhile, legal risks for the franchise industry have grown after the Supreme Court of Korea ordered the return of margin-based franchise fees in a Pizza Hut case in January, prompting similar lawsuits against major domestic brands. Each company has tried to distance itself by arguing that "our contracts and profit structures differ from those of Pizza Hut," but anxiety remains high after the Supreme Court of Korea ruled such margin-based fees illegal. On top of this, the Amendment to the Fair Transactions in Franchise Business Act, which grants franchisee associations the right to engage in collective bargaining with headquarters, passed the National Assembly of the Republic of Korea last year, putting homegrown franchise headquarters under mounting management pressure.
An official at the Korea Franchise Association (KFA) stated, "More than 70% of brands have fewer than 10 outlets, and these small players will suffer the most," adding, "If the owners of small franchisors have to negotiate one by one with each franchisee group, normal business operations become impossible."
While domestic franchises are beset by troubles at home and abroad, Chinese franchises are accelerating their expansion into Korea. Leading examples include the hot pot chain Haidilao and the mala tang chain Tanghuo Kungfu, both of which have sharply increased their sales and store counts. Haidilao’s sales in Korea were only 19.8 billion won in 2021, but rose to 41.2 billion won in 2022, 58.3 billion won in 2023, and 78.0 billion won in 2024. Industry observers expect last year’s sales to have approached 100 billion won. In just three years, Haidilao’s revenue has grown by nearly 150%.
security@fnnews.com Park Kyung-ho Reporter