By Kim Tae-jong





Global food franchise brands, including Starbucks and McDonald's, are expected to change their aggressive expansion strategy here, as Korea's small players are urging the government to restrict their fast growth.

The Korea Convenient Restaurant Association, representing small food and beverage outlets, last week decided to ask the National Commission for Corporate Partnership (NCCP) to restrict major coffee franchise brands from opening new stores, arguing the survival of small coffee houses has been threatened by their aggressive expansion.

"It is almost impossible to run an individual coffee shop due to the dominance of big franchise brands," said Kim Soo-bok, a director at the association. "We will first begin with coffee franchises and later ask for restrictions on the excessive expansion of pizza and hamburger chains."

The request came as a lot of the self-employed who run small coffee shops and diners have been put in jeopardy due to competition from larger firms.

A recent study by the KB Financial Group showed that nearly half of self-employed businesses fail within three years, and more than 75 percent of them do not last a decade.

If their request is accepted, major coffee chains such as Starbucks, Coffee Bean, Twosome Place and Angel in Us, and fast food brands such as McDonald's, Burger King and Pizza Hut, will be restricted from opening new stores.

The underlying logic is that owners of small coffee houses and food outlets believe that limiting the expansion of big franchises will promote shared growth.

In response, the NCCP said it will examine their request and take necessary action.

"We will first see whether it is legitimate or not and have a thorough discussion involving representatives from both big franchise brands and small coffee outlets to seek a solution," an official from the NCCP said. "The decision should come out in the first half of next year."

She stressed that the restriction, if approved, would be applied to both local and foreign franchise brands in a fair manner.

The government has pushed for restrictions as part of measures to protect small- and medium-sized enterprises (SMEs).

In September 2011, the government prohibited conglomerates from further expanding on a list of industries where SMEs could thrive. Under the policy, big companies are limited in the number of products they are allowed to sell, and cannot open new stores in any industry on the list.

Previously, the government has put the brakes on the expansion of big bakery franchises by banning them from opening new stores within 500 meters of existing bakeries.

The commission has also recommended that food service chains be barred from expanding and asked big companies not in the food business to refrain from entering that market.

Regarding the recent move, industry observers think the commission's restriction on foreign brands could cause trade conflicts, as it could be seen as excessive regulation.

But foreign coffee brands and eatery chains took a very careful stance, saying they will take action depending on the NCCP's final decision.

"Basically, it is our global principle that we follow local government's rules," an official from Starbucks Korea said. "Of course, the NCCP's decision would have an impact on our business, as we would be restricted from opening more stores."

The local arm of the U.S.-based coffee chain previously announced that it would increase its number of stores to 700 by 2016. Starbucks currently has about 530 stores nationwide.

McDonalds' also shared a similar view, saying that it will abide by the local rules.

"It's difficult to comment on what has not happened yet," an official from McDonald's said. "But basically, we will follow what the government comes up with."

The brand has 330 stores nationwide, which it had planned to increase to 500 by 2015.