Korean Americans Move On to Franchises

With his tiny hoop earring and spiky haircut, Matt Kim blends in with the funky urban scene surrounding the Java Centrale his family purchased on trendy Melrose Avenue.

The 30-year-old Korean immigrant has learned to whip up a perfect cafe latte, but he admits he still is a newcomer to the coffee bar business.

Before buying the franchise last May, Kim and his parents had operated a dry cleaner’s in South-Central Los Angeles for 15 years. The grueling hours, constant disputes with customers and the 1992 Los Angeles riots, which left their business in ruins, spurred their departure.

“We got fed up,” said Kim, whose family sold the dry cleaner’s two years after rebuilding it. “We decided it was time to move on.”

The Kims’ new opportunity reflects the changing direction of many Korean American entrepreneurs, who are abandoning their mom-and-pop shops to test a quintessentially American venture: the franchise.

Increasingly, Koreans have grown disenchanted with the stereotypical immigrant businesses they have tended to pursue: the independent liquor stores, dry cleaners and neighborhood markets.

In an upscale Anaheim Hills strip mall, Jae Lee is all too happy to serve up frothy fruit smoothies at the trendy Juice Stop franchise he purchased early this year with his nephew, Jin Choi. Only a year ago, the 52-year-old immigrant spent his days holed up in a tiny Laguna Hills liquor store, wrangling over booze prices and fending off drunks and thieves.

“Compared to the liquor store, this is a very safe, clean business,” he said. “Now, I have customers who wait outside the store at 6:30 in the morning because they want to have a healthy breakfast.”

Although no one expects a mass exodus from their independent shops, Korean Americans for the first time are showing a collective interest in franchises. This enthusiasm began after the riots left an estimated 2,500 Korean-owned businesses damaged or destroyed. Declining sales at small urban shops, caused by increasing competition from giant discount stores and other chain businesses, also have encouraged the trend.

“Over the past few years, we’ve definitely seen more mom-and-pop businesses closing up and franchises opening up,” said Harrison Kim, director of the Korean American Chamber of Commerce in Los Angeles. “Korean business owners have been going in that direction because they realize it’s very hard to survive as an independent.”

No one knows exactly how many Korean Americans have purchased franchises because none of the franchise associations keep ethnic statistics.

But interviews with Korean American entrepreneurs, community leaders, business brokers, journalists and franchise representatives suggest there is growing interest in franchises among Southern California’s roughly 30,000 Korean business owners.

“I think the Korean business community is definitely in transition,” said Ted Kim, a Koreatown business broker who has introduced several entrepreneurs to franchise opportunities. “Many Koreans have been in this country for some time now, and they’re ready to try something more sophisticated than a liquor store or dry cleaner’s.

“They also want to become part of the mainstream. They want an American-style business.”

Jae Lee, who runs the Juice Shop in Anaheim Hills, got out of the liquor store business after spending five years working 15 hours a day, seven days a week.

“I never missed one day of work in all five years,” he said. “Even one day when I had to go to the hospital in the morning, I went to work in the afternoon.”

But Lee also feared financial ruin after increasing numbers of his customers began buying their liquor at club stores for prices he couldn’t match.

“Nowadays so many liquor stores are failing because the big stores like Costco make it difficult to compete,” he said.

Many see franchising as a logical step for a community because it tends to provide a good introduction to more sophisticated business practices involving marketing, advertising and hiring of employees.

Because franchisers require their operators to pay royalties that usually run between 4% and 9% of gross sales, franchising tends to be regarded less as a big money-making venture than as a steady business that can grow over time.

“Koreans want safety,” said Jimmy Yoon, a business reporter at the Korea Times in Los Angeles. “They like franchises because [they have] a brand name.”

Because of the tightknit nature of the Korean American community, trends often spread quickly through word of mouth and coverage in the local media. Yoon said he has received hundreds of calls from readers in response to a recent series he wrote about franchising.

“They asked for contact numbers, and they wanted to know how much of an initial investment they need to make,” he said. “They’re concerned about the language problem, but they’re really eager to try it.”

Historically, it makes sense for the Korean business community to be moving on to new ventures.

For successive waves of immigrants, the liquor stores and inner-city shops have represented the first stage of American entrepreneurship. Just as Jewish merchants abandoned their liquor stores after the 1965 Watts riots, Koreans are expected to move on as well.

Many Korean immigrants arrived in the United States during the 1970s and ‘80s, and purchased liquor stores and other mom-and-pop shops because they lacked the English skills and capital to pursue other opportunities.

But now, after living in this country for several years, many have acquired English skills and capital to explore other options.

Leaving the inner city has become a goal because there is a widespread feeling in both the Korean and larger communities that liquor stores and mom-and-pops are dying businesses.

“The day of small independent retailers is coming to an end because of big chain stores who can beat them to death on price and selection,” said Jack Kyser, chief economist of the Los Angeles County Economic Development Corp.

The 1992 riots also planted a deep-rooted fear among Koreans, not only because Korean American establishments lost more than $400 million during the unrest, but because they felt targeted.

“Before, the emphasis among Koreans was to try to make as much money as they could,” Harrison Kim said. “Then after many of them lost everything they had during the riots, they reevaluated their lives and realized it wasn’t worth it.”

That’s why Tony Kang traded in his Long Beach liquor store for an Econo Lube N’ Tune franchise in Yorba Linda. Kang, who purchased the auto lube shop in June, sold his liquor store at a loss with no regrets.

“For me, the riots were the turning point,” said Kang, who did not lose his business during the riots. “I can make more money running the liquor store, but money’s not everything. I have to think about my safety and my family.”

Now, the 34-year-old immigrant works full days only on Fridays. He spends the rest of his time attending school, helping to care for his three children and playing golf.

“I want to enjoy life,” he said. “At the liquor store, I used to work 12 to 14 hours a day, seven days a week. I know overall this is a better business, because I don’t want to get tired anymore.”

With fears lingering from the riots, Koreans also have become acutely aware of ongoing crimes against neighborhood shopkeepers. Just in the past two months, two Korean Americans were shot during robbery attempts at their liquor stores, one fatally, according to the Korean-American Grocers Assn.

“It’s common knowledge that owning mom-and-pop liquor stores is rather dangerous because of the crime,” said Mindy Cho, executive director of the national Korean-American Grocers Assn. “Many feel the risks are not worth it anymore.”

There are about 2,500 franchisers and 600,000 franchise units around the world, the vast majority in the United States, according to the International Franchise Assn. in Washington. Because the industry continues to grow 10% to 12% each year, there are many opportunities for newcomers, said Terry Hill, the organization’s spokesman.

Many Koreans make good candidates for franchising because they already have experience running businesses, said Gary Nelson, president of Java Centrale Gourmet Coffees and Cafes, which has Korean operators at four of its 36 locations.

A large number of Korean entrepreneurs also meet the capital requirements of franchises from the sale of their businesses or from Small Business Administration loans, bank officials say.

“The Korean community is very organized. There are lots of banks and knowledge about how to get loans,” said Alberto Alvarado, director of the Los Angeles SBA office.

Korean banks appear to support the trend, realizing after the riots that they needed to diversify the types of businesses they lend to. Banks no longer see opening a liquor store in South-Central as a good prospect, said Sung Soo Han, a vice president at Hanmi Bank in Koreatown.

“Korean banks made a big mistake because they indiscriminately provided funds to liquor stores,” Han said. “Our job is to measure risk, and franchises are a lot better in terms of risk.”

As the owner of six Southern California Denny’s restaurants, Eric Chung frequently receives calls from other Koreans interested in franchising.

“I tell them it’s a proven concept, and that I’m totally satisfied,” he said. “I encourage them to get into mainstream businesses because I think it will help the overall reputation of the Korean community.”

Chung got involved with franchising after an exhaustive run as an independent business owner. Before opening his first Denny’s in Anaheim in 1990, he operated a South-Central hamburger shop, a coffee shop and a cafeteria-style restaurant in Koreatown.

“The only thing I had to do with franchising was learn, follow the business structure and add my personal devotion,” he said.

But there can also be risks. For instance, a franchiser might sell too many franchises in one area or fail to deliver on marketing promises.

“Some of these business owners may not be looking to see whether a particular business is viable, or they may not fully understand the franchise concept,” Harrison Kim said. “There are high fees and a lot of restrictions, and some Koreans may not understand that because they don’t do their homework.”

Koreans also need to speak English proficiently enough to communicate with customers and corporate representatives, said Jimmy Bang, a vice president at Nara Bank in Koreatown.

“A lot of Koreans have the money, but they don’t speak English well enough to communicate with franchisers,” he added.

To overcome language obstacles, some Korean American entrepreneurs have bought franchises with their children, who speak English fluently and have a greater understanding of American culture.

Raphael Han and his parents purchased their first Surf City Squeeze outlet at a West Covina shopping mall in 1995. Today, the family operates two other Surf City juice bars at malls in Northridge and Burbank.

The family, which previously owned an independent discount store in East Los Angeles, has divided responsibilities so that Han, 31, takes care of day-to-day operations, while his father handles the finances.

“It made sense for us to do it together, he said.”

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