[Edaily Marketin Song Seung-Hyeon Reporter] It is generally expected that when a private equity (PE) firm acquires a company, it will first cut labor costs. This is especially true in the restaurant industry, where labor costs account for a significant portion of operating expenses.

BKR, the operator of Burger King Korea acquired by VIG Partners (then known as Bogo Fund) in late 2012, took the opposite approach. According to the audit report, revenue increased by 31% during the holding period, while labor costs rose by 46%. Although the proportion of labor costs relative to revenue increased, the company’s value grew even further, and it was sold to another private equity firm. On the very day of the sale, this private equity firm received a plaque of appreciation from the company.

131 Stores Trapped in Seoul… Franchisees Expand Nationwide Through a Three-Stage Interview Process

According to the investment banking (IB) industry on the 14th, BKRL was established on November 21, 2012, following the spin-off of the Burger King, Food Culture, and Food Products business divisions from SR Korea, an affiliate of Doosan. Nine days later, on November 30, Bogo BKRL Investment Corporation—established by Bogo Fund—acquired 100% of the company’s shares. The acquisition price is reported to have been between 100 billion and 110 billion won, of which 85 billion won was equity. It is reported that the deal was finalized after 3G Capital—a Brazilian private equity firm that acquired Burger King’s headquarters in 2010—joined forces with Doosan to persuade the company, despite Doosan’s initial stance that it could not sell Burger King separately.

At the time of VIG’s acquisition, there were 131 stores, and scale—rather than profitability—was the primary issue. At that time, Lotteria had over 1,000 stores, and McDonald’s had about 290. Furthermore, 80% of Burger King’s stores were concentrated in the Seoul metropolitan area. Although the brand had name recognition, it was operated primarily through company-owned stores, and investment in new store openings within the group had come to a halt. The financial results for the 41-day period immediately following the spin-off (November 21–December 31, 2012) showed revenue of 20.4 billion won and operating profit of 700 million won.

In November 2013, one year after the acquisition, VIG appointed President Moon Young-ju as CEO of BKR. As a professional restaurant industry executive who had brought Benihana to Korea and held positions at Market O Restaurant and Pizza Hut Korea, he took full charge of a company that had previously been managed as just one of several business units within the group.

Store expansion followed a two-track approach, targeting both the Seoul metropolitan area and other regions. While shifting from a model reliant solely on company-owned stores to one that expanded franchising, prospective franchisees were screened through a three-stage interview process that included character and financial vetting. The number of stores grew to 162 in 2013, 199 in 2014, and 236 by the end of 2015. The company expanded its drive-thru locations and introduced 24-hour service, delivery, and a breakfast menu. The menu was organized into three tiers: Premium, Core, and Value. The Quattro Cheese Whopper, developed in Korea, sold 2.5 million units during its limited-time run and became a permanent menu item; after being re-exported to the U.S., it was also sold in China, Thailand, and the Philippines. Immediately after the sale, CEO Moon stated, “While existing fast-food companies were fixated on low-price menu items, our decision to strengthen our premium offerings proved to be the key to our success.”

“The Essence of the Restaurant Business Is People”… 46% Increase in Labor Costs Over Two Years

In an interview one year after taking office, President Moon said, “The essence of the restaurant business lies in people,” adding, “It’s not a glamorous job, but it can only be done by those who like people and love making them happy.” The headquarters was dubbed the “Restaurant Support Center” to signify its role in supporting store employees and customers.

President Moon’s remarks symbolically illustrate BKR’s value creation. The company’s spending on people is broken down in the audit report’s “Selling and Administrative Expenses” section into “Salaries,” “Retirement Benefits,” and “Employee Benefits.” This figure includes monthly salaries, annually accrued retirement benefits, the four major social insurance premiums, and meal allowances. The combined total of these three categories rose from 47 billion won in 2013 to 59.7 billion won in 2014 and 68.9 billion won in 2015—a 46.4% increase over two years. During the same period, revenue grew by only 31.2%. As spending on personnel grew faster than revenue, the share of labor costs in total revenue rose from 22.2% to 24.7%. While salaries for full-time employees increased by 17% from 17.6 billion won to 20.6 billion won, miscellaneous payments to part-time workers, such as casual employees, jumped by 65% from 21.0 billion won to 34.6 billion won. The company hired enough staff to staff its expanded store network.

The selling, general, and administrative (SG&A) ratio—the proportion of revenue accounted for by operating expenses such as labor costs, rent, and advertising—fell from 60.1% to 57.6% over the same period. This means that even while spending more on personnel, overall cost efficiency actually improved, thanks to rent. While the number of stores increased by more than 100, total rent remained flat at 36.5 billion won to 37.1 billion won. This means the rent burden per store has been significantly reduced.

On February 18, 2016, VIG signed a share purchase agreement to transfer 100% of its stake in BKR to Affinity Equity Partners, a Hong Kong-based private equity firm. The transaction was finalized on April 7 of that year when Convenient Food Network—the entity established by Affinity to serve as the acquirer—took ownership of the shares. The sale price was 210 billion won, double the amount paid when the company was acquired just over three years earlier. On the day the transaction was finalized, CEO Moon presented a plaque of appreciation to Park Byung-moo, CEO of the Bogo Fund. The plaque read, “Thank you for increasing our full-time workforce from 3,358 to 5,517 over the past three years.”