Chicken Game (1)
When national income rises, prices tend to rise right along with it.
Based on what I experienced the first time around, chicken prices eventually climbed past 30,000 won. So a 20,000-won chicken order wasn’t all that shocking.
The problem was that prices were rising much faster than even I remembered.
Why on earth had chicken already broken the 20,000-won mark?
What had changed since the first time around?
I dug into the data to find the cause.
South Korea might look like a chicken kingdom, as if the whole country lived on nothing but fried chicken, but in reality the per-capita chicken consumption was only about a third of the United States’ and roughly half of the OECD average. It wasn’t actually that high.
But the story changed once you looked at restaurant statistics.
There were around 500 franchise brands, with roughly 25,000 franchised stores. Add in independent shops, and the total climbed to a staggering 80,000.
That was twice the number of McDonald’s locations worldwide, despite McDonald’s being the very symbol of franchising, and eight times the number of KFC stores across the globe, even though KFC was the world’s largest chicken franchise.
At that point, South Korea could fairly be called the country with the highest number of chicken restaurants per capita.
And even in this chicken republic, the top three companies controlled more than half the market. Those were Hanjeong Chicken, BQQ Chicken, and Lulu Chicken.
Among them, the industry leader was Hanjeong Chicken.
The same place where Sunwoo and I had opened a franchise together the first time around.
Chicken had a strong image as a working-class food.
Raising prices would certainly make more money, but it also risked drawing criticism that a chaebol group was gouging ordinary people by selling expensive chicken.
That was why, while it was still part of the Hanjeong Group, it had been difficult to raise prices openly or bully franchise owners too blatantly.
The self-serving price hikes and the scheme to pocket profits through an intermediary distribution company had happened only after the Hanjeong Group was fully separated.
But this time, the Hanjeong Group had been dissolved, and Hanjeong Chicken was sold off immediately to a private equity fund.
The first thing the acquiring fund did was launch a new menu item and raise prices.
After hearing me out, Sunwoo looked at me and said, “Hold on. So because the Hanjeong Group was dismantled and Hanjeong Chicken got sold to a private equity fund, chicken prices started climbing even faster?”
“Exactly.”
“So in the end, this is your fault.”
“Huh? No, why would it be my fault?”
As I stared at him, flustered, Sunwoo answered as if it were obvious. “You were the one who broke up the Hanjeong Group. If it weren’t for you, Hanjeong Chicken never would’ve been sold to private equity, and chicken prices wouldn’t have gone up, would they?”
“Well, I mean...”
Sunwoo suddenly looked genuinely shocked. “What the hell? So because of you, the whole country is suffering?”
“What are you talking about?”
“Go apologize right now to the grandmother who couldn’t buy fried chicken for her grandchildren visiting from the countryside because she was short 3,000 won after the price hike!”
“……”
* * *
I took a look at public reaction to the 20,000-won chicken price.
The public was on the verge of exploding.
The entire country was voicing its pain over the price hike.
Since my regression, I had made countless investments.
Some companies had flourished because of me; others had fallen into ruin. Chaebol groups had collapsed, and big tech companies had been crushed.
In the process, there had been more winners and losers than I could possibly count.
The latter were probably far more numerous.
Still, I had never felt especially guilty about that.
Investing was ultimately each person’s own responsibility. Anyone who took part had to bear the consequences, whether they made money or lost it.
That was my view.
But this case was different.
Ordinary people who had nothing to do with investing were the ones suffering.
When I thought about how many people must have been crying blood because of me, I felt guilty enough to lose sleep.
Chicken was already 20,000 won!
Since my responsibility was not small, I couldn’t just leave this situation alone.
I had to come up with a solution.
* * *
I went into the office and asked one of the staff to dig up data and organize everything they could find on Hanjeong Chicken.
A little later, instead of the staff member, Senior Dongho himself came over to my desk carrying the materials.
“Here’s what you asked for.”
I skimmed through the files.
Hanjeong Chicken was the market leader among franchises.
Its market share and revenue were stable and solid, and under normal circumstances there’d be no reason to sell it.
But during the Hanjeong Group’s collapse, every kind of scandal involving the owner family had been exposed, and Ju Hyeon-jin had even been arrested for drug use.
He’d been out on probation before long, but still.
With the owner’s image in that state, who would feel like ordering Hanjeong Chicken?
When an owner-risk scandal hits a franchise, the franchisees are the ones who suffer most. Hanjeong Chicken’s sales plunged, and franchise owners pushed back hard.
Senior Dongho stood beside me and explained the rest. “...For those reasons, it was sold to Lakefall K Private Equity.”
“I see.”
“Looks like Ju Hyeon-jin participated as a junior investor.”
“Really? How much equity does he have?”
“His personal stake is 32 percent.”
In other words, Lakefall K bought Hanjeong Chicken, and Ju Hyeon-jin used the money from selling Hanjeong Chicken to buy back equity in Lakefall K.
“There’s also an institutional investor, but that looks a lot like Ju Hyeon-jin’s paper company. If you include that, it goes up to 71 percent.”
“At that point, isn’t it basically just the same thing under a different name?”
“Probably.”
Then Ju Hyeon-jin was still effectively controlling Hanjeong Chicken as the major shareholder of Lakefall K.
Hanjeong Chicken’s current revenue was an astonishing 650 billion won.
It was on the level of a mid-sized listed company.
It was amazing to think about how many chickens they had to sell to generate that kind of revenue.
Well, revenue aside. What mattered was operating profit.
Last year’s operating margin was 32 percent.
It was the kind of number that made you rub your eyes to check if you’d read it right.
Senior Dongho clicked his tongue. “Amazing, isn’t it? At first I thought I’d misread the numbers. What kind of chicken franchise has an operating margin higher than semiconductors?”
The reason operating profit, which had originally been around 10 to 15 percent, had shot up so sharply was simple: costs had stayed the same while prices had been raised like crazy.
“Then why are you suddenly interested in Hanjeong Chicken?”
“Don’t you think chicken has been getting absurdly expensive lately?”
Senior Dongho nodded. “It’s insanely expensive. I saw it hit 20,000 won not long ago. Isn’t that ridiculous?”
“It is ridiculous. The hard part is getting past 20,000 won once. Once it’s over 20,000, the next stop is 29,000. If we leave it alone, South Korea may be entering the 30,000-won chicken era within a few years.”
“Come on, surely not.”
I said firmly, “No. Keep watching, and you’ll understand exactly what I mean.”
* * *
Until not long ago, the price of chicken had included delivery fees. Then Hanjeong Chicken became the first in the industry to declare that it would charge delivery separately.
That was, in effect, a 3,000-won price increase.
After that, they kept finding excuses to inch the price up by 1,000 won here, 2,000 won there, until before anyone realized it, the price of a single chicken order had crossed 20,000 won.
How did BQQ Chicken and Lulu Chicken, the number two and number three companies, react to Hanjeong Chicken’s price hike?
Did they celebrate the newfound pricing power compared with the market leader?
Not a chance.
In an oligopoly, when the leader raises prices, everyone else tends to follow.
As soon as Hanjeong Chicken raised its prices, BQQ Chicken and Lulu Chicken jumped after it as if they’d been waiting for the cue. And just like that, South Korea entered the 20,000-won chicken era.
As expected, public opinion was terrible.
And then something happened that poured gasoline on the fire.
SBC Radio’s Pleasant Radio Life.
A weekday morning lifestyle program hosted by announcer Jin Se-yeon.
Thanks to her soft voice and steady delivery, it boasted the highest listener ratings of any radio show in its time slot.
The most popular segment of all was Pleasant Meeting, where famous people from all walks of life were invited in and asked whatever the listeners wanted to know.
"Today we have with us Chairman Hong In-gyun of BQQ, the man known as Korea's chicken king. Hello, Chairman. Thank you so much for joining us despite your busy schedule."
"Yes, hello."
"Chicken prices have risen a great deal recently. People around me are saying a single chicken now costs 20,000 won, which makes ordering it difficult. What are your thoughts on that?"
"There’s a lot of misunderstanding among customers on that point. Twenty-thousand-won chicken is by no means expensive. Compared by weight alone, one kilogram of chicken is far cheaper than pork belly. Once you factor in the price of live chickens, logistics, powder coatings, frying oil, labor, delivery fees, and so on, the headquarters isn’t actually making much profit at all."
"So do you believe chicken prices should be raised even further?"
"Of course. Prices for cabbage and apples can jump by 200 or 300 percent at a time and nobody says a word. But the moment chicken prices go up by only 2,000 or 3,000 won, everyone loses their minds. Labor costs, rent, delivery fees—everything has gone up, but because we’re watching customers’ moods, we can’t raise prices however we like. Headquarters and franchisees are both suffering serious hardship, and no one is speaking up for us on that."
"Then what do you consider to be the appropriate price?"
"I believe chicken should be 30,000 won, not 20,000 won, like it is now."
Once that statement aired, the seething public opinion exploded in an instant.
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