Restaurant franchise owners in South Korea typically need about two years and seven months to recoup their initial investment, with the majority continuing to pay fees to headquarters well beyond the startup phase. (Image created by AI/ChatGPT)
SEOUL, April 15, (Korea Bizwire) — A new industry survey has found that restaurant franchise owners in South Korea take an average of two years and seven months to recover their initial investment, while more than half continue to pay fees to headquarters long after opening.
According to a report released Monday by the Korea Federation of SMEs, just under half (49.6%) of 514 food franchisees surveyed between March 4 and 23 said they had recouped their startup capital. On average, the recovery period lasted slightly more than 31 months. Respondents who were still in the process of recovering their investment expected it would take over 38 months.
Despite recovering their initial outlay, 55.3% of respondents said they still pay so-called “continuing franchise fees” to franchisors. These include royalties, training fees, and management support charges, paid either periodically or on an ad hoc basis, regardless of naming conventions.
Among the most common forms of these payments were fixed royalties (43.0%), markup-based payments on mandatory purchases (39.4%), and sales-linked royalties (34.5%). The markup-based model, known as differential franchise fees, allows franchisors to charge distribution margins on essential goods supplied to franchisees.
Only 13.6% of respondents said there were no “mandatory purchase items” designated by headquarters—raising concerns among regulators. The Korea Federation of SMEs noted a 31.1 percentage point gap between those claiming not to pay continuing fees and those unaware that purchase costs may already include hidden markups.
Over half (55.6%) of franchisees said the scope of mandatory purchases was reasonable, though 17.3% disagreed. Of those dissatisfied, 63.6% cited high distribution markups as the main concern.
Roughly one in five respondents (20.6%) said they believed franchisors were charging excessive fees, particularly royalties (45.3%), followed by product markups (37.7%) and shared promotional or e-voucher costs.
The top reason for viewing these charges as excessive was that fixed-rate fees hurt profitability regardless of sales performance (30.2%).
In terms of unfair practices over the past three years (2022–2024), 17.7% of respondents reported experiencing at least one instance. The most common complaints involved price controls (37.4%), forced purchases of raw materials (33.0%), and subtle threats of retaliation for refusing contract changes (25.3%).
When asked about urgent policy needs, 34.2% of respondents pointed to the introduction of a disclosure system for franchise information. As for improving franchise relations, 30.2% urged franchisors to develop competitive products through better analysis of consumer trends.
Despite these challenges, a majority (62.1%) of respondents said they were satisfied with both the franchise launch and their current business performance. The top reasons for choosing a franchise model included simplified startup procedures (41.4%) and access to franchisors’ business expertise and standardized operations (18.7%).
Ashley Song (ashley@koreabizwire.com)
