"From Frenzied Opening Runs to Sale in Two Years: Kim Dongseon’s Burger Venture Faces New Chapter [Why&Next]"

Sluggish Performance in Hanwha Galleria's Department Store Business
New Investments in Dining and F&B Increase Financial Burden
Funds Expected to Be Allocated for Luxury Store Reconstruction
Aiming for a Premium Sale Amid Performance Rebound

Five Guys, the American burger brand led by Kim Dongseon, the third son of the Hanwha Group and Executive Vice President in charge of Future Vision at Hanwha Galleria and Hanwha Hotels & Resorts, is reportedly being prepared for sale less than two years after its launch in Korea. Five Guys initially gained immense popularity in the Korean market, with customers lining up before opening, prompting Hanwha to acquire the business rights for Japan and expand its territory. However, the sudden move to sell the domestic business rights has drawn significant attention.

Yonhap News

Amid worsening performance in the department store sector, which is the core of Hanwha’s distribution business, Kim Dongseon has spearheaded a series of new investments. These include the acquisition of Ourhome, the second-largest group catering company, as well as the expansion of Baskoop Creamery, an ice cream specialty store, and Five Guys’ entry into Japan. As a result, there is growing speculation that this is a strategic decision to secure much-needed capital.

Kim Dongseon, Vice President of Hanwha Galleria (fourth from the left), and key stakeholders are taking a commemorative photo at the first anniversary event of Five Guys' domestic launch last year. Provided by FG Korea

Five Guys Opens 8th Store Today... Sale Pursued Two Years After Launch

FG Korea, the operator of Five Guys, announced on the 25th that it would open its eighth domestic store in Yongsan, Seoul. The new store is located on the third floor of Living Park in Yongsan I’Park Mall, with a total area of 413.1 square meters (about 125 pyeong) and 118 seats. Operating hours are from 10:30 a.m. to 10:00 p.m. daily.

After opening its first store on Gangnam-daero, Seoul in June 2023, Five Guys expanded its presence in major commercial districts in Seoul and Gyeonggi Province. The number of stores increased to five last year, and has grown to eight this year. The company plans to open a ninth store within the year. Initially, Five Guys set a vision to operate more than 15 stores in Korea by 2028, but the company explained that store expansion is progressing faster than originally planned.

In its first year, Five Guys was so popular that customers lined up before opening, and its performance was strong. According to the company’s audit report, sales in 2023 reached 10 billion won, with the Gangnam-daero store alone achieving a “surprise performance” over eight months. Last year’s sales were 46.5 billion won, a 365% increase from the previous year. However, since this figure is the combined annual sales of five stores, it was not as explosive as the first year. Last year, operating profit turned positive at 3.4 billion won, compared to an operating loss of 1.3 billion won in the first year.

Despite this, Hanwha Galleria is pursuing the sale of Five Guys just two years after its launch. Hanwha Galleria, which owns 100% of FG Korea, recently distributed teaser letters (brief investment proposals) to several private equity fund (PEF) managers for the sale of Five Guys’ domestic business rights. Hanwha Galleria stated, “We are reviewing various options, including strengthening brand competitiveness, after achieving better-than-expected results in just two years. The sale of domestic business rights is being discussed as part of this process,” adding, “We are considering the sale of business rights from a perspective that is the exact opposite of business expansion.”

Five Guys Establishes Japanese Subsidiary... Facing Liquidity Issues?

The main reason cited for Hanwha Galleria putting Five Guys up for sale is a lack of liquidity. After acquiring the rights to launch Five Guys in the Japanese market from the global headquarters in July last year, FG Korea established a Japanese subsidiary in February. The company plans to open more than 20 stores in major Japanese cities, including Tokyo, over the next seven years. To support this, FG Korea conducted two paid-in capital increases totaling 7 billion won in December last year and May this year.

On July 14, FG Korea borrowed 4 billion won from Hanwha Galleria for store openings and subsidiary operating funds. The loan will be disbursed in three installments in July, August, and November.

Hanwha Galleria itself also faces a tight cash situation due to poor performance in its core department store business. As of the first quarter of this year, Hanwha Galleria’s current liabilities due within one year amounted to 574 billion won, far exceeding its liquid assets of 324.7 billion won. In particular, short-term borrowings due within one year increased by approximately 25 billion won to 129 billion won in the first quarter of this year, up from 104.1 billion won at the end of last year. Meanwhile, Hanwha Galleria’s cash and cash equivalents stood at just 47.9 billion won.

The department store business, which focuses on luxury goods, has lost momentum, making it difficult to secure cash. Luxury goods account for 40% of total sales at Galleria Department Store, a higher proportion than competitors, which typically range from 20% to 30%. However, due to high inflation and weakened consumer sentiment, the company posted an operating loss of 1.1 billion won last year, turning to a deficit. While department store sales reached 396.4 billion won, up 12.6% from the previous year, considering that the 2023 sales figures exclude two months due to the spin-off and relisting from Hanwha Solutions in March to December, it is likely that actual growth was negative.

Nevertheless, Kim Dongseon has actively pursued business expansion by positioning food and beverage (F&B) operations?including dining, burgers, wine, and coffee?as new growth engines. In addition to subsidiaries such as Vino Galleria (wine importer), Hanwha BNB (bakery), and Pureplus (beverages), this year, two more companies were added: the Five Guys Japan subsidiary and Baskoop Creamery, which operates the premium ice cream brand “Benson.” Hanwha Galleria’s F&B business sales reached 64 billion won last year, more than six times the previous year’s 10.4 billion won, but the share of total sales remains in the 10% range.

An industry insider commented, “Although Kim Dongseon has led various new business initiatives, the results have not been clearly proportional to the investments.” The insider added, “It appears the company judged that this is the right time to sell Five Guys, which has shown relatively better sales performance, at a reasonable price.” Hanwha Galleria stated that if the sale of Five Guys proceeds, the funds will be invested in the reconstruction of the Seoul luxury goods store and in strengthening the business portfolio through the discovery of new growth drivers.