hankyoreh

SSM owned by Lotte Group

By Kim Su-heon, staff reporter

On Oct. 7, Hyundai Department Store announced last Sunday that it would be selling off its Vezzly bakery brand, apparently in response to public disapproval of chaebols entering businesses traditionally occupied by mom-and-pop stores. Questions are now being raised about the bakery businesses run by retail conglomerates such as Lotte and Shinsegae.

Early this year, daughters of chaebol families used their individual stock to launch bakery businesses, kicking up a firestorm of public criticism. Even President Lee Myung-bak stepped into the fray and announced, “The children or grandchildren of chaebol families might think opening up a bakery is a fun hobby, but it’s a threat to the livelihoods of small bakery store owners.”

Lee Bu-jin, CEO of Hotel Shilla (the eldest daughter of Samsung Electronics Chairman Lee Kun-hee) sold off her high-end bakery brand, Artisee, Chung Sung-yi, adviser at advertising company Innocean Worldwide (the eldest daughter of Hyundai Motor Group Chairman Chung Mong-koo) followed suit and shuttered her bakery cafe, Ozen. Chang Seon-yoon, granddaughter of Lotte Group Chairman Shin Kyuk-ho, also sold her bakery brand, Fauchon, to the Maeil company.

The embers of controversy surrounding “chaebol bakeries,” however, have yet to cool. Even though the chaebol daughters’ bakery businesses, a source of public discontent, have been shuttered following their retreat from the market, chaebol-affiliated bakery brands, which have a much bigger influence on sales and the market in general, are still as prosperous as usual.

The case of Lotte Group is a representative example. When Lotte announced the withdrawal of Fauchon, run by Chang Seon-yoon, it said the reason was “to respond to the government policy of encouraging common growth as well as the public sentiment in favor of the protection of small businesses.” Lotte has not, however, given up the bakery business altogether. Lotte is continuing its bakery business through Lotte Boulangerie, a Lotte Group affiliate built in 2000. 90.54 percent of its shares are held by Lotte Shopping. The bakery brand runs 131 outlets in stores of Lotte’s retail affiliates including Lotte Mart, Lotte Department Store and Lotte Super. Last year, out of 90.6 billion won in sales from Lotte Boulangerie, 60 percent or 54.4 billion won came from stores located within Lotte affiliates.

An internal transaction system is at work in which affiliates provide retail space for the group’s bakery brand and retail affiliates use the bakery brand to attract customers. Recently Lotte increased roadside shops to more than 10 outlets. For this reason, some have pointed out that Lotte’s disposal of the Fauchon brand, which consisted of a mere seven outlets in department stores, was merely for show and allowed it to dodge criticism that would have targeted at Lotte Boulangerie, which has twenty times that number of stores.

Shinsegae Group also runs the bakery affiliate Shinsegae SVN. Since opening its first outlet in a Bundang area E-Mart in 1996, the group has opened 144 shops with 135 bakery outlets (111 Day and Day stores and 24 Milk and Honey stores) in E-Mart locations and nine outlets (Dalloyau) in Shinsegae Department Store branches. Those bakery brands reported 256.6 billion won in sales last year. Like Lotte Boulangerie, Shinsegae has easily acquired the upper hand in the market by using the network of stores of its retail affiliates. Notably, early this month, the Fair Trade Commission imposed a fine of four billion won on Shinsegae retail affiliates for unfairly aiding SVN by charging low sales commissions or low lease rates.

Chung Yoo-kyung, vice president of Shinsegae and the daughter of Shinsegae Group Chairwoman Lee Myung-hee, is the second biggest SVN shareholder with 40 percent of shares, following Chosun Hotel with 45 percent. Chosun Hotel is a subsidiary completely owned by the Shinsegae Group. In the face of chaebol-bashing surrounding issue of bakery business, Shinsegae did not show its intention to withdraw Chung’s stakes from SVN, but at last decided to sell off her shares when faced with the imposition of fines by the committee. However, even if Chung sells off her stocks, Chosun Hotel is still the biggest shareholder, which means the chaebol group is still engaged in the bakery business. Another retail conglomerate, Home Plus also operates 130 shops of its bakery brand, Artisee Boulangerie.

A Milk and Honey store in a E-mart

After the emergence of super supermarkets and corporate grocery stores steamrolled traditional markets and side-street businesses, the chaebol’s current scheme of utilizing its distribution pathways to encroach on the sales of neighborhood bakers is widely seen as unchecked greed. Even though the effect on mom-and-pop bakeries will be less than what is felt by the ubiquitous Paris Baguette (SPC Group) and Tous Les Jours (CJ Group), huge corporations making a buck in the very few remaining realms of the people is hard to regard positively. For their part, Lotte and Shinsegae representatives have said that this criticism is too harsh.

A source at Lotte said, “Lotte Boulangerie doesn’t have its sights set on the neighborhood businesses but rather was born out of the necessity for retail conglomerates to sell an array of products,” adding “After beginning the venture, our losses have been piling up and we are actually eating into our capital at this point. It is unfair to charge that we have been making money in the bread business.”

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