Korea Pizza Hut, the first-generation pizza franchise in the country that entered court receivership, is launching a high-intensity promotion exceeding 50% starting from the beginning of the new year.
Korea Pizza Hut recorded an operating loss of 4.5 billion won in 2023 amid changes in the restaurant industry landscape. Adding to the troubles, it lost a lawsuit against franchisees last year. In September, the appellate court ruled that Korea Pizza Hut must return all of the 21 billion won in differential franchise fees following a lawsuit filed by franchisees in 2020 for unjust enrichment.
Industry insiders are watching whether Korea Pizza Hut can escape its losses while also responding to high-stakes lawsuits.
According to the restaurant industry on the 14th, Korea Pizza Hut began a promotion starting on the 7th in collaboration with telecommunications company LG Uplus, offering discounts of up to 55%. The promotion runs until the end of this month. Just a week after launching an event with OK Cashback, which offered up to 45% off pizza prices on the 1st, it introduced a discount rate 10 percentage points higher.
In the pizza franchise industry, it has been common to set high consumer prices and to lower the transaction cost with discounts from telecommunications companies or credit cards. However, a discount rate exceeding 50% has been rare.
Competitors such as Domino's Pizza and Papa John's typically match telecommunications discount rates, capping them at 30% for premium categories and 15% for standard categories.
A Korea Pizza Hut official noted, 'This is a temporary event for telecommunications users.'
Major pizza franchises in the country, including Korea Pizza Hut, have recently faced disappointing performances. As prices were raised in response to high inflation, they lost consumer favor, leading to decreased sales. Operating profit also dropped since they could not fully reflect the increases in raw material costs like flour and cheese in their prices. Consumers have turned to frozen pizzas at large supermarkets or food corner pizzas that offer better value for their money instead of expensive franchise pizzas.
Korea Pizza Hut reported an operating loss of 256.12 million won in 2022, marking its transition into the red. The scale of operating losses last year reached 4.5 billion won, an 18-fold increase in just one year. In 2023, Korea Pizza Hut's revenue of 8.69 billion won was more than 25% lower compared to 2019, before the pandemic.
As lawsuits with franchisees escalated, the number of franchise locations has been gradually declining. As of the end of 2023, Korea Pizza Hut recorded 297 franchise locations, a decrease of 40 over the two years. In 2021, 24 new locations opened while 9 closed. In 2023, conversely, 5 locations opened and 32 closed. The number of contract terminations has tripled over the last three years. Additionally, following the loss in court, there is a requirement to compensate 21 billion won, putting the corporation's survival at risk.
Seok Joo-young, a researcher at the Korea Research Institute of Foodservice, stated, 'In recent years, first-generation pizza franchises have raised product prices several times due to increases in raw and subsidiary material costs, resulting in some pizza companies often charging 40,000 to 50,000 won for a large pizza meant for 2-3 people, including delivery fees.' He also commented that 'Although Pizza Hut introduced promotions like buy one get one free (1+1) and a lunch special pizza for 9,900 won after a leadership change in 2023, it instead increased consumers' distrust of prices.'