[THE INVESTOR] Korean dessert cafe franchise Sulbing has some ambitious plans for this year.
“We’re aiming to open 40 stores by the year-end,” the firm said in a statement on Aug. 8 as it announced its first outlet in Cambodia. “We are confident of attracting global customers with our know-how for making Korean desserts.”
On the opening day in Cambodia, its outlet attracted over 300 local customers, according to the company. Sulbing also operates in seven other countries outside of Korea, including China, Thailand and Japan.
Its sales in 2014 peaked to 20.1 billion won (US$17.87 million), but in two years, it dropped to 9.5 billion won. Partly due to the sloppy quality, and also because it was a saturated market.
In 2017, it sales slightly rebounded to 11.8 billion won overseas. However, despite the apparent need to go abroad, some industry watchers are doubtful about the company’s expansion plans.
“It is crucial to do a lot of research before entering a foreign market. We also no longer hastily recommend our member companies to start a business outside Korea because it is extremely risky,” Lee Chuel, Korea Food Service Industry Association spokesperson told The Investor.
Is third time a charm?
It is not the first time Sulbing could fail abroad due to lack of preparations. In 2015, it entered Shanghai by signing a master franchise agreement contract with a local partner. At the time, the Korean company aimed to open 150 outlets in the city by 2017.
That didn’t happen as the Chinese partner accused it of mismanagement. According to its partner, Sulbing was not doing anything about other domestic stores ripping off its concept. It also said the Korean headquarters was not handling its trademark rights properly in China.
“This happened due to ignorance. Now many Korean operators understand that it is important to take care of trademark issues. But before, many Korean franchise operators tried entering China without resolving trademark rights issues, which caused them lots of losses,” Jung Hwan-woo, a researcher at Korea Trade-Investment Promotion Agency said.
He added that considering it usually takes around a year for a Korean firm to earn trademark rights in China, Sulbing was too hasty.
Although a Chinese court ruled in favor of the Korean company in a related lawsuit, the dessert cafe franchise’s business in Shanghai has stalled since then.
And it’s not just in China. Former Sulbing International CEO Seo Jin-soo sued the Thailand affiliate, a joint venture with a local firm International World Ettia Thai, for breaking the master franchise contract. According to Seo, the Thai firm signed a contract to hand over its rights to operate in the northern region of the country with Sulbing International. But after the JV opened 13 outlets, Sulbing Thailand ordered the closure of stores unilaterally.
Sulbing Korea denied its responsibility, saying, “We are hoping that the issue between both companies will be resolved quickly.”
Trademark issues in Korea
Another reason industry watchers believe Sulbing is not ready yet is because things are not all dandy on its home turf either.
In May, prosecutors accused Korean porridge franchise operator Bon IF CEO Kim Chuel-ho of embezzlement. He allegedly received trademark royalty fees in his personal bank account, instead of the corporate account.
A number of other franchises owners including Sulbing CEO Jung Sun-hee were also accused of similar malfeasance.
“It’s clearly illegal. Since the brand value is sustained and increases through marketing efforts, the earnings should be directed to the company and not individual owners,” said attorney Kim Nam-geun.
After the reports came out, Sulbing immediately announced that it will change its rights to the company from the owner. But even after three months, the CEO is yet to transfer the rights, which include paying transfer taxes and deciding the brand value.
“We are currently consulting lawyers about our trademark value. The review process usually cannot be done in a short time, so we are taking some time,” a Sulbing spokesperson said.
By Song Seung-hyun (firstname.lastname@example.org)