Deal focus: Bonchon flies the coop

Jinduk Seo opened the first Bonchon fried chicken restaurant in Busan in 2002. Although fried chicken is as much a staple of Korea’s quick service restaurant (QSR) industry as kimchi is to traditional cuisine, Seo soon decided that his brand had more of a future overseas than in his home market.

“There are more than 30,000 fried chicken outlets in Korea and hundreds of brands. It’s a very competitive environment and the founder couldn’t see a clear way to penetrate the market,” says Younggi Han, an executive director at VIG Partners, which recently acquired a majority interest in Bonchon International. “He started in Manhattan and this helped with brand awareness because a lot of tourists, expatriates and foreign exchange students liked to dine there.”

Despite speaking little English, Seo succeeded in creating an international business that encompasses more than 325 restaurants across eight countries. The US is home to 85 of these restaurants, but Southeast Asia is Bonchon’s largest market, with 34 outlets in Thailand and over 190 in the Philippines. The company also has a limited presence in the likes of Cambodia, Myanmar and Bahrain. Revenue and EBITDA are on track to reach $230 million and $9.8 million, respectively, in 2018. 

Most of this revenue comprises royalties from franchisees and the sale of proprietary fried chicken sauces. Bonchon directly owns three restaurants in the US and serves as franchisor for the remaining 82, but for other markets, Seo sold the master franchise rights to local operators. In the case of Thailand and the Philippines, he ended up working with foreign exchange students who had enjoyed their Bonchon experience in Manhattan.

The essential product offering isn’t much different from what has proved so successful in Korea: fried chicken and beer. Seo added a few more Korean dishes to the menu and then trusted in his partners’ local knowledge. “The founder’s job was to provide quality menus. The master franchise holders understood how to penetrate their home markets,” Han adds. “Various chaebol-owned Korean restaurant chains have tried to enter these markets buy they failed because they didn’t localize.”

VIG paid around 8x EBITDA for a 55% stake in Bonchon international, with Seo’s family retaining most of the rest. The plan is to reach 1,000 restaurants within five years.

It is hoped that Bonchon can leverage the same cross-border appeal enjoyed by Korean entertainment, fashion and beauty brands – but ultimately the company must find its niche in each market. “We looked into why the restaurants were popular in Thailand and the Philippines and initially the K-wave did influence consumers. Now it doesn’t matter so much. Korean celebrities are not used in marketing and the restaurants don’t play Korean music. Bonchon is known as a fried chicken place that also serves affordable Korean dishes.”  

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• Topics
• North Asia
• Consumer
• Buyouts
• South Korea
• VIG Partners