Bakery war deepening

The government is moving to tighten regulations on big bakery franchises to prevent their reckless expansion. Market leader SPC Group, which owns nearly 3,200 Paris Baguette outlets nationwide, is strongly opposing the move. / Korea Times file

New rules to be unveiled against franchise expansion

Tension is rising among the country’s bakery franchises because the government is expected to announce new regulations preventing further domestic expansion of their businesses.

The Commission for Shared Growth for Large and Small Companies will publish the rules today despite strong opposition from major bakery franchises.

It comes amid mounting public anxiety over what critics called “reckless” expansion of big companies into segments ruled by mom-and-pop stores that have been cited as the key culprit behind the widening income gap between large and small companies.

President-elect Park Geun-hye is a vocal advocate for the restriction, included as part of the push for “economic democratization,” indicating that objections voiced by opponents of it will go largely unheeded.

The commission has carried out extensive studies to apply the small business-friendly restrictions to dozens of other industries.

Market leader SPC Group with nearly 3,200 outlets across the country has openly expressed grave concerns over the move, claiming the rule, if applied, will seriously threaten its survival. The group, established in 1945, has a business portfolio that wholly focuses on bakeries.

SPC and other bakery giants have pleaded with the commission to get the rule adjusted in a way that poses little threat to their bottom lines but this ended in failure, according to industry insiders.

The Korea Bakery Association initially tried to thwart the commission’s move to regulate the industry but the commission was determined not to yield, according to SPC officials.

The association renegotiated with the regulator with a second-best scenario of allowing bakery franchises to open new outlets each year within three percent of their existing number of outlets, or at least equal to the number of outlets they close. This suggestion was also rejected, they said.

“We don’t rule out the possibility that the government will completely forbid bakery franchises from opening new outlets,” an SPC official said on condition of anonymity. “Should it become a reality, it’s truly a matter of time for us to perish.”

The official complained that the firm has already sustained losses due to the trade law which was revised in April in order to forbid bakery franchises from opening new shops within a 500-meter radius of an existing bakery.

“Major bakery franchises will wither and die under multiple restrictions,” the official said.

The second largest player, CJ Foodville, with nearly 1,300 outlets here has also vented its frustration but this is less worrisome than objections from SPC because it recently made changes to its strategies on the domestic market to avoid such risks.

CJ Foodville CEO Heo Min-heoi said earlier this month that his company will “voluntarily refrain from opening new stores” in Korea and instead focus more on overseas markets.

Foodville, which has more than 70 outlets overseas, is aggressive in promoting its Tous les Jours brand and its products in China, Singapore, Vietnam, Indonesia and Southeast Asian countries in order to become No.1 bakery franchises there by sales by next year.

Many experts see the possibility that the envisioned regulations could thwart SPC’s ambitious overseas expansion project by cutting its cash inflow from domestic business.

Marking the opening of its 100th overseas store in March, SPC unveiled its goal for the market of having 3,000 outlets in 60 countries by 2020 with combined sales of over 2 trillion won ($1.84 billion).

The firm plans to make headway toward its new goal with a diversified product lineup, a premium strategy targeting high-end customers and more localized marketing and sales activities. <The Korea Times/Park Si-soo>