[비즈한국] The atmosphere surrounding Theborn Korea475560 is grim. Negative public sentiment is rising against Baek Jong-won, the CEO of Theborn Korea. While CEO Baek is attempting to improve his image through aggressive discount promotions and simultaneously pursuing mutual growth with his franchisees, the nature of the franchise business makes the interests of franchisees and shareholders inherently conflicting. Shareholders of Theborn Korea demand the maximization of corporate profits, but for franchisees, their own profits take precedence over those of the headquarters. CEO Baek is in a position where he must promise benefits to both, which is no easy task in reality.
Theborn Korea’s stock price has plummeted significantly compared to its listing. The company went public last November with an offering price of 34,000 won. On its listing day, November 6, the stock price surged to as high as 64,500 won, marking a spectacular debut. However, that was the peak. The stock price has since fallen steadily and is currently hovering in the high 20,000-won range.
Concerns were present from the time of Theborn Korea's IPO. The outlook for the franchise industry was already poor due to the amendment of the Franchise Business Act, which took effect last July. The main points of the amendment include the mandatory inclusion of essential item lists and supply price calculation methods in franchise contracts. Furthermore, since last December, any changes to transaction conditions regarding essential items that are unfavorable to franchisees must be negotiated with them, and the procedures and information must be explicitly stated in the contract. Sanctions can be imposed if conditions are changed to the detriment of franchisees or if related details are not clearly specified. For Theborn Korea, the amended act has applied to new franchise outlets since July of last year and to existing stores since January of this year.
Han Yu-jeong, a researcher at Hanwha Investment & Securities, noted in October of last year, ahead of Theborn Korea’s listing, "Paik's Coffee is estimated to have the highest product supply rate from the headquarters among Theborn Korea's various brands, and is believed to have contributed significantly to the company's rapid growth over the past three years." However, she also analyzed, "While the number of franchise stores for the top four low-cost coffee brands in Korea reached 7,647, Paik's Coffee has relatively fewer stores compared to competitors, and with intensifying competition in the low-cost coffee franchise market, the possibility of slowing growth cannot be ruled out."
Of course, expectations for Theborn Korea were high. At the center of this anticipation was CEO Baek Jong-won. Baek boasts high recognition from his appearances on various television programs. Leveraging this fame, Theborn Korea has been invited to various local government festivals, generating significant revenue. Another strength cited was that Theborn Korea does not rely on a single product but owns a diverse portfolio of food service franchise brands.
Jang Ji-hye, a researcher at DS Investment & Securities, forecasted before the IPO: "The company will continue to generate cash flow by operating a stable franchise business through multi-brand strategies, cost-effectiveness, and the development and renewal of new menus. It will also create synergy between business divisions through service and IP revenue generated from regional development projects, local economic revitalization, and the creation of new consumption."
However, recent negative sentiment toward CEO Baek Jong-won, largely centered on online communities, has cast a shadow over Theborn Korea's prospects. The company is already facing difficulties with local government events, one of its main revenue sources. Uljin County signed a memorandum of understanding (MOU) for mutual growth with Theborn Korea in September 2023 to revitalize the local economy. Accordingly, Uljin County planned to hold a large-scale event with the company. However, an official from Uljin County stated at the county's Budget and Accounts Special Committee in April, "We intended to hold a festival, but because Theborn Korea's own credibility has fallen so much, we put it on hold." It is reported that other local governments, not just Uljin County, are also considering putting festivals with Theborn Korea on hold.
As the image of CEO Baek Jong-won deteriorates, the outlook for Theborn Korea's franchise business is not bright. From a consumer perspective, there is no reason to visit a Theborn Korea brand when alternatives exist. While Theborn Korea has been attracting consumers through aggressive discount promotions recently, there is no guarantee that consumers will continue to visit after the promotions end.
If Theborn Korea's performance worsens, it could lead to a decline in stock price. If the company fails to recover its stock price, it will be difficult to avoid backlash from shareholders. The problem arises if shareholders demand the maximization of Theborn Korea's profits. To maximize corporate profit, the company might implement policies contrary to the interests of franchisees, such as price hikes. In a similar case, some shareholders of Kyochon F&B339770, the operator of Kyochon Chicken, demanded the closure of regional franchise headquarters last year, and the company complied by converting them into directly managed operations.
It seems unlikely that CEO Baek Jong-won will take an adversarial stance against his franchisees. If conflict erupts between Theborn Korea and its franchisees, public opinion regarding CEO Baek could worsen even further. Moreover, Theborn Korea has already pledged to pursue mutual growth with its franchisees. The company plans to officially launch a "Mutual Growth Committee" soon for practical communication and sustainable cooperation with franchisees. CEO Baek is in a position where he must promise benefits to both, which is practically an arduous task.
CEO Baek Jong-won also appears to be seeking a breakthrough. On the 9th, Theborn Korea announced a shift from a co-CEO system (Baek Jong-won and Kang Seok-won) to a single-CEO system under Baek Jong-won. This is aimed at resolving delays in decision-making and ambiguities in accountability that occurred under the co-CEO structure.
Furthermore, Theborn Korea has recently established audit, public relations, and information security teams to strengthen its foundation for ethical management and restore both internal and external trust. The company explained that it plans to appoint young and talented individuals to middle management positions through follow-up personnel changes. The policy is to build a responsible management system by delegating authority to professional managers in each division, thereby achieving on-site reform and the recovery of customer trust. CEO Baek stated, "This crisis is a stern warning that we must remain faithful to the fundamentals," adding, "I will achieve corporate innovation and a leap forward with the resolve of burning my boats."