[비즈한국] The food and beverage (F&B) business expansion strategy pursued by Kim Dong-seon, Vice President of Hanwha Galleria452260 and third son of the Hanwha Group chairman, has reached a turning point. Recently, Hanwha Galleria has been pursuing the sale of its stake in the U.S. premium burger brand 'Five Guys' and is considering reinvesting the proceeds into the reconstruction of the Galleria Department Store Luxury Hall in Apgujeong, Seoul. A shift in stance is being detected, moving away from an aggressive F&B expansion to refocusing on strengthening the competitiveness of its core department store business.
Five Guys Sale Targeted for First-Half Closing
Hanwha Galleria is in the process of selling Five Guys. On December 17 of last year, FG Korea, the subsidiary operating Five Guys, announced that it had signed a memorandum of understanding (MOU) for the sale of its stake with private equity firm (PEF) H&Q Equity Partners. The transaction is expected to be finalized within the first half of this year.
A Hanwha Galleria representative explained, "After distributing teaser letters, many companies and investors showed great interest, but we selected H&Q as the preferred bidder because they highly evaluated the performance and future growth potential of Five Guys in Korea and showed a strong commitment to the business," adding, "We will negotiate specific details as we proceed with formal steps such as due diligence."
In June 2023, Vice President Kim Dong-seon launched an expansion into the F&B sector by securing domestic operating rights for the U.S. burger brand Five Guys. The brand received high market interest and achieved positive business results. Five Guys' 2024 revenue reached 46.5 billion won, a 365% increase compared to the previous year. Operating profit was also recorded at 3.4 billion won, marking a successful turnaround to profitability.
With the sale price of Five Guys reportedly in the 60 billion won range, the market views this deal as a 'successful exit.' Considering the initial investment was in the 20 billion won range, it is expected that the company will reap a profit nearly double its investment in about two and a half years.
Hanwha Galleria plans to use the proceeds from the Five Guys sale to strengthen business competitiveness, with the reconstruction of the Apgujeong Galleria Luxury Hall being cited as a key investment area. Given that the reconstruction is estimated to cost approximately 900 billion won, it is analyzed that a significant portion of the funds secured from exiting the Five Guys business is likely to be poured into this redevelopment project.
Hanwha Galleria is pursuing the reconstruction of the Galleria Department Store Luxury Hall in Apgujeong, Seoul. The plan is to completely renew aging facilities and expand the retail space to boost the department store's competitiveness. Currently, the Galleria Luxury Hall operates in two buildings completed in 1979 and 1985, and its retail space is about 27,438㎡ (approx. 8,300 pyeong), which is only 30% of Shinsegae Department Store's Gangnam branch.
Once the reconstruction is complete, the retail space of the Luxury Hall is expected to more than double to about 59,504㎡ (approx. 18,000 pyeong). The plan includes two hourglass-shaped buildings designed by world-renowned designer Thomas Heatherwick, with nine basement levels and eight floors above ground. The project aims to start construction in 2027 and reach completion by 2033. A Hanwha Galleria representative explained, "We are proceeding with the reconstruction in consultation with the Seoul Metropolitan Government, so the current schedule is just a planning stage and nothing is finalized."
Why Galleria is Changing Direction Amid the Trend of Strengthening F&B
The inevitability of a short-term performance void once construction begins is a burden for Hanwha Galleria. As the Luxury Hall is the key store supporting the company's overall performance, a decline in revenue is difficult to avoid if operations are restricted during the construction period. A Hanwha Galleria representative stated, "Because the Luxury Hall is divided into two buildings, we are considering a method of operating one building while the other is under construction," adding, "We believe some level of sales decline is unavoidable as operational disruptions are inevitable."
Nevertheless, analysts suggest that the reason Hanwha Galleria is pushing for reconstruction with a cost near 1 trillion won is due to a sense of crisis regarding the medium-to-long-term survival of the department store business. An industry official said, "The Apgujeong Luxury Hall lags behind competing department stores in terms of space and facilities," and "Even if we take the risk of an operational gap, there is no clear alternative other than reconstruction to overcome structural limitations."
The Galleria Department Store Luxury Hall in Apgujeong, Seoul, is the flagship store that generates the highest revenue among the Galleria group's five major locations. While it has been considered a symbolic space in the domestic luxury market for being the first to host the 'ERUSHA' (Hermès, Louis Vuitton, Chanel) brands, there have been continuous criticisms that its aging facilities and limited retail space are weakening its competitiveness.
Lee Jong-woo, a professor of business administration at Ajou University, added, "As demand for enjoying and experiencing spaces rather than just purchasing items increases, department stores are gradually becoming larger," and "Since the market is trending toward a structure where only large-scale stores survive, it is a difficult environment for Galleria to endure competition without scaling up. We can expect performance improvements after the reconstruction."
Industry experts interpret that Hanwha Galleria is shifting its business focus back to its core department store business with the reconstruction as a momentum. Until now, Vice President Kim has continued aggressive investments in the F&B business, including Five Guys, as well as wine, beverages, and ice cream. However, it is difficult to identify clear achievements other than Five Guys.
For this reason, the industry analyzes whether the company is scaling back its F&B business and refocusing its capabilities on the core department store business during a re-examination of its overall business portfolio. Professor Lee Jong-woo analyzed, "There is a clear trend among recent department stores to foster food and dining as core competitiveness. Amid this trend, Galleria's move to reduce its F&B business appears to be a result of coldly re-evaluating the competitiveness of the brands it chose directly," adding, "Consumption trends are moving toward cost-effectiveness and mass appeal, so it is highly likely that they felt limitations in the scalability of premium brands."
Hanwha Galleria stated that there is no change in the overall framework of its business strategy, including the F&B business. A representative from Hanwha Galleria said, "In the case of the F&B business, we have continuous growth plans centered on our own brand, Benson Ice Cream. The F&B business is not trending toward weakness," and "Our policy is to strengthen the core competitiveness of the department store business while simultaneously raising the competitiveness of the entire business in a balanced manner."