Chicken Caught in Delivery Hell: 10,000 Won Price Hike in Four Years [The Fall of the Chicken Republic] ③

Growth of Delivery Platforms and Chicken Industry After the COVID-19 Pandemic
Market Expansion, But Profits Flow to Delivery Platforms and Franchise Headquarters

Editor's Note
The delivery platform market experienced explosive growth during the COVID-19 pandemic. However, chicken, which is the most frequently ordered item on delivery applications, is facing a crisis. The more orders come in through delivery apps, the more delivery fees snowball. Chicken franchise companies have responded by raising prices to protect profitability. However, these price increases have led to higher delivery fees, which in turn have driven up consumer prices, dampened demand, and intensified management difficulties, creating a vicious cycle. The price of chicken, now at 25,000 won, illustrates the collapse of the so-called "chicken republic" that once flourished on delivery platforms. Chicken, the nation's favorite snack, has become the starting point for the downfall of self-employed business owners. Concerns are mounting that if the monopoly structure of delivery platforms is left unchecked, even the franchise industry-long considered an easy entry point for entrepreneurs-could collapse.

Chicken Pixabay

The price of a single chicken has soared well past 15,000 won, now exceeding 20,000 won. When the unprecedented infectious disease swept the nation and froze the dining-out market, delivery demand surged explosively. This surge fueled the simultaneous growth of delivery platforms and the chicken franchise market. As social distancing made home-cooked meals and delivery orders part of daily life, chicken established itself not just as a "national snack" but as the leading delivery menu. While the pandemic threatened the survival of small business owners, the chicken industry enjoyed a boom.

However, not everyone benefited equally. While the market grew in size and prices rose, the profits were concentrated not with consumers or franchisees, but with delivery platforms and franchise headquarters. Delivery platforms nearly doubled their operating profits by revising their commission and advertising systems, while headquarters increased their margins by raising supply prices under the pretext of "rising costs."

Growth of Delivery Platforms, Formation of a Duopoly

According to the Financial Supervisory Service and the restaurant industry on October 22, the surge in delivery demand has driven rapid growth in the delivery platform sector. Baemin (Woowa Brothers) posted sales of 1.0994 trillion won and an operating loss of 11.2 billion won in 2020, but within two years, sales jumped to 2.9471 trillion won with an operating profit of 424 billion won, turning profitable. In 2023, sales reached 3.4155 trillion won with an operating profit of 699.8 billion won (operating margin of 20.5%). Last year, sales soared to 4.3226 trillion won, and the intermediary commerce segment alone grew 30.9% to 3.5598 trillion won. That same year, Baemin increased its intermediary commission by 3 percentage points. Although Coupang Eats does not disclose its performance, it is believed to have surpassed Baemin's market share in Seoul and the greater metropolitan area.

The delivery platform market has solidified into a duopoly between Baemin and Coupang Eats. According to Mobile Index, Baemin's monthly active users (MAU) increased from 22.56 million in 2023 to 23.06 million as of August this year. Coupang Eats nearly tripled its MAU from 4.38 million to 11.74 million during the same period. Together, the two platforms now command over 90% of the market share.

Delivery platforms have become both the driving force behind and a cost burden for the chicken franchise industry. While they have fueled market growth, they have also been cited as a cause of declining franchisee profits. The chicken franchise market, which was worth 5.3 trillion won in 2019, grew 54% to 8.2 trillion won in 2023 during the pandemic. The number of franchise stores also rose 15% from 25,687 to 29,727 during the same period.

According to a survey by the Korea Rural Economic Institute, the proportion of households using delivery or takeout increased from 36.9% in 2021 to 45.8% last year. The average monthly spending on delivery or takeout food was 93,000 won. Among delivery menu items, chicken ranked first with a usage rate of 30.7%, followed by bossam and jokbal (19.7%), pizza and pasta (14.6%), and Chinese cuisine (13.3%).

However, behind the expansion of the franchise market, the livelihoods of franchisees have become more strained. According to disclosure statements published by the Fair Trade Commission, the average sales per 3.3 square meters for BHC dropped 15.9% from 31.86 million won in 2021 to 26.8 million won last year. During the same period, Kyochon Chicken also saw a 5.8% decrease from 35.1 million won to 33.06 million won. BBQ's figure declined slightly from 32.6 million won in 2023 to 32.41 million won last year.

The closure rate has also risen. The closure rate for chicken businesses increased from 11.9% in 2020 to 12.1% in 2023. For Kyochon Chicken, the number of stores that closed last year was 28, more than triple the previous year's 9 stores.

Franchisees unanimously say they "have no choice." This is because store exposure and delivery fee settings are entirely dictated by platform policies. Considering advertising costs (200-600 won per click), intermediary commissions (6-9%), payment processing fees (3%), and delivery fees (3,000-4,000 won per order), industry sources explain that the net profit per chicken for franchisees is barely around 2,000 won. This is why some describe delivery apps as a "black hole sucking up local businesses."

Franchise Headquarters Expand Profits by Raising Supply Prices

Another beneficiary is the franchise headquarters. The prices of signature menu items at BHC, Kyochon, and BBQ have risen by 27-46% compared to 2021. BHC's "Fried Chicken" jumped 46.6% from 15,000 won to 22,000 won. Kyochon's "Honey Combo" rose from 18,000 won to 25,000 won on delivery apps (38.8%). BBQ's "Golden Olive Chicken" increased 27.7% from 18,000 won to 23,000 won. These increases are more than double the consumer price inflation rate (about 12%). Considering that most new chicken products are now priced at 25,000 won, this is a 10,000 won jump from the pre-pandemic average price of 15,000 won.

BBQ (Genesis BBQ) saw sales rise 38% from 366.2 billion won in 2021 to 506.1 billion won last year. Operating profit also increased 31% from 65.3 billion won to 85.6 billion won. The gross profit margin improved from 39.5% to 40.8%. BHC (Dining Brands Group) saw sales increase from 477 billion won to 512.7 billion won, and Kyochon Chicken (Kyochon F&B) saw its gross profit margin rise from 21.8% to 30.2%.

Headquarters explain that these increases are "inevitable due to rising raw material costs." In fact, BBQ raised the supply prices of 39 items, including fresh chicken and olive oil, in 2022. The price of chicken per bird rose 9% from 5,500 won to 6,000 won, and a 15kg container of olive oil jumped 33% from 120,000 won to 160,000 won. BHC also adjusted its oil supply price from 82,500 won to 121,050 won that same year.

However, industry insiders point out that this is "not just a simple cost increase but a structural margin expansion." One industry source said, "The oil supplied by headquarters accounts for half of the total margin. A single store uses 30-40 containers a month, and with a 40,000 won increase per container, that's an extra 1.2 million won per month and 14 million won per year." This analysis suggests that supply price hikes have served as a means for headquarters to expand profits.

According to the Fair Trade Commission, the average rebate franchise fee for chicken franchisees in 2023 was 35 million won, the highest among all industries. The rebate franchise fee is the difference between the actual cost and the supply price of raw materials provided by headquarters to franchisees, essentially the supply margin. This accounts for 8.6% of the average franchisee's sales. In other words, a significant portion of the 20,000 won paid by consumers ends up with headquarters.

Experts warn that this structure could undermine the foundation of the franchise industry. Lim Youngkyun, Professor Emeritus at Kwangwoon University, pointed out, "The spread of delivery platforms is disrupting the balance of the franchise system," and emphasized that "franchise headquarters must play a mediating role between franchisees and platforms."

However, in reality, headquarters are still more like bystanders. Although some brands have introduced a "dual pricing system" (setting different prices for in-store and delivery app orders), these efforts have not been fully implemented due to consumer backlash and concerns about platform reactions. Professor Lim stressed, "If headquarters fail to protect the survival of franchisees, the entire franchise system could collapse. It is now time to strengthen their role as negotiators and coordinators at the system level."