Korea Pizza Hut, which is undergoing a corporations rehabilitation process, is struggling to find a new owner. It is reported that if Korea Pizza Hut ultimately loses in the ongoing lawsuit over the difference in franchise fees with its franchisees, it will have to pay at least 21 billion won to the franchisees, which poses a significant burden for potential buyers. Additionally, the company's performance has been negatively affected as Korea Pizza Hut has become relatively expensive compared to other value-for-money pizza brands.
◇ Korea Pizza Hut delays rehabilitation process... “Unable to find a buyer”
According to the legal community on the 26th, the Seoul Rehabilitation Court's 12th Division (Director General Choi Du-ho) adjudicating Korea Pizza Hut's rehabilitation case has postponed the deadline for submitting a rehabilitation plan six times. The rehabilitation plan is a document detailing how the corporations will repay their debts and normalize management, serving as the first crucial step in corporate rehabilitation.
A spokesperson for the Seoul Rehabilitation Court noted, 'The rehabilitation process has been continuously postponed since the end of last year due to the inability to find a merger and acquisition target.'
Korea Pizza Hut filed for corporations rehabilitation proceedings with the Seoul Rehabilitation Court last November. At that time, Korea Pizza Hut was not in an immediate cash crunch for operational needs.
The issue is that Korea Pizza Hut faced losses in both the first and second trials of the lawsuit filed by franchisees over the difference in franchise fees, increasing the risk of having to compensate franchisees 21 billion won. The difference in franchise fees refers to the margin applied to goods that the headquarters forces franchises to purchase.
Some Korea Pizza Hut franchisees filed a lawsuit in 2020, claiming that the headquarters excessively increased margins on materials without consulting them and requested a refund of amounts exceeding reasonable margins. After losing in the first and second trials, Korea Pizza Hut filed an appeal, and the Supreme Court is currently reviewing the case.
◇ Possibility of 21 billion won burden also hampers Korea Pizza Hut's performance
The legal community analyzes that there are two main reasons why Korea Pizza Hut is struggling to find a buyer. Firstly, the payments related to the difference in franchise fees lawsuit, which caused the corporations rehabilitation, could be a significant burden for potential buyers.
Korea Pizza Hut's recent performance has also been poor. Pizza Hut entered Korea in 1985. At that time, the U.S. restaurant company Yum Brands, the parent company of Pizza Hut, opened its first store in Itaewon. As Pizza Hut quickly established itself in the Korean market, its sales exceeded 400 billion won in 2004.
However, since the latter half of 2010, its performance began to decline. Competitors, such as Mr. Pizza and Domino's Pizza, initiated aggressive marketing strategies to catch up. In 2017, Yum Brands sold its 100% equity stake in Korea Pizza Hut to Orchard One. Last year, Korea Pizza Hut's sales dropped to 83.1 billion won. It has recorded operating losses since 2022.
It is difficult to say that the popularity of pizza itself has waned. According to market research firm Euromonitor, the domestic frozen pizza market size grew from 90 billion won in 2019 to 143 billion won in 2021, 159 billion won in 2022, and 168.5 billion won in 2023.
Industry insiders said, 'Consumers have increasingly felt burdened by the 20,000 to 30,000 won pizzas primarily sold by Pizza Hut.' Many frozen pizzas offered by large discount stores and food companies are priced below 10,000 won. Moreover, there are many value-for-money brands like Pizza Nation Chicken Princess and Pizza School, offering large-size pizzas for 10,000 to 20,000 won.
This shift in trends can also be confirmed by the recent decline in sales and operating profits of Domino's Pizza and Mr. Pizza, which have been considered leading pizza franchises in Korea alongside Korea Pizza Hut. In contrast, Rich Beam, the operator of Pizza Nation Chicken Princess, reported sales of 96 billion won and operating profits of 21.2 billion won last year. Their sales steadily increased from 45.6 billion won and operating profits of 3.9 billion won in 2015 when the audit report was disclosed, surpassing Domino's Pizza's operating profits of 13.3 billion won last year.
If ultimately no buyer appears to invest funds and prepare a rehabilitation plan for Korea Pizza Hut, the court could proceed with the termination of the rehabilitation process. If the court then declares bankruptcy, Korea Pizza Hut’s assets will be liquidated and distributed among the creditors.