When an Item Takes Off, Copycats Flood In: Brands Disappear Overnight [Stalled K-franchise]

"There are far too many here-today-gone-tomorrow brands. It feels like brands popping up and disappearing overnight have become the new normal," said an official at a major corporate restaurant franchise.
Hit by a sluggish domestic market and a proliferation of me-too brands that simply follow the latest craze, the Korean franchise industry is facing a watershed moment. It has recorded the highest number of store closures ever and, for the first time since statistics began, a decline in the number of franchise headquarters.
On top of that, regulatory risks such as a wave of lawsuits over the return of differential franchise fees and amendments to the Fair Transactions in Franchise Business Act that grant collective bargaining rights have cast dark clouds over the business environment. Observers argue that to clean up the murky market, franchises must steadily develop products and strengthen self-regulation so that long-lived brands, resilient to short-term trends, can take deeper root.
According to data on franchise transactions released on the 15th by the Korea Fair Trade Commission (KFTC), the number of franchise headquarters in Korea declined last year for the first time since records have been kept. The number of headquarters fell to 8,758, down 356, or 3.9%, from 9,114 the previous year. The figure had been on a steady rise, from 7,766 in 2021 to 8,369 in 2022, 8,862 in 2023, and 9,114 in 2024, but then reversed course last year. Closures of food-service franchise outlets also hit a record high of 29,217 cases last year. Industry insiders primarily cite the domestic downturn and rising labor and rent costs, which have driven up the debt burden of self-employed owners, as key reasons for the surge in closures. Outstanding loans to the self-employed, which stood at 888 trillion won in 2021, jumped by 182 trillion won, or 20.5%, to surpass 1,070 trillion won as of the second quarter of last year. Analysts say that soaring borrowing, on top of higher labor and rental costs, is sharply increasing the management burden on franchisees and the franchise sector as a whole.
“Only when franchisees face a lighter debt burden can they run their businesses sustainably, and that is ultimately positive for headquarters as well,” an industry official noted.
Structurally low entry barriers and a glut of poorly run franchises are also pushing up closure rates. Whenever a particular item takes off—such as malatang, Dubai chocolate, or tanghulu—a swarm of me-too brands rushes in, only to shut down en masse later, repeating a vicious cycle. Critics say brands should not merely ride short-lived fads, but instead build robust, independent staying power for each concept.
Tightening regulations are further squeezing the operating environment for franchises. Around 20 major domestic franchise companies, including BHC Chicken, Kyochon Chicken, Genesis BBQ Group, Mega MGC Coffee, Frank Burger, and A Twosome Place, are currently embroiled in lawsuits over differential franchise fees. In January, the Supreme Court of Korea ruled in a case involving Pizza Hut that the franchisor must return the differential franchise fee—a type of distribution margin it earns by supplying raw and subsidiary materials to franchisees. That decision has triggered a wave of similar lawsuits across the franchise industry. The companies argue that their revenue structures differ from Pizza Hut’s and that the differential franchise fee is clearly stipulated in their contracts, but the Supreme Court precedent has made it difficult to predict how the cases will unfold.
An amendment to the Fair Transactions in Franchise Business Act that passed the National Assembly late last year has also become a flashpoint for the industry. The core of the revision is to grant franchisee associations the right to engage in collective bargaining with headquarters. Industry players worry that this will fuel conflicts in negotiations between franchisees and franchisors, encourage the rise of untested organizations, and ultimately discourage normal business operations.