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Big bakery sales cause SMEs faith to crumble

Chaebol debunk shared growth myth by selling to large rivals

These file photos show outlets of Artisee, left, and Fauchon. The two premium bakeries owned by chaebol scions have been sold, not to SMEs or individuals, but to other big companies. -JoongAng Ilbo

Two bakeries owned by scions of Samsung and Lotte Group have been sold in response to a public outcry over the encroachment of big business into economic territory traditionally claimed by mom-and-pop stores.

The kick is that the stores have been handed over to other big companies, drawing questions as to whether the government’s shared growth policies are actually working.

Hotel Shilla President Lee Boo-jin made good on her promise at the start of the year by withdrawing from the bakery business in April. Lee sold Bonavie, an affiliate that ran the Artisee bakery and cafe chains, to Daehan Flour for 30.1 billion won ($26.3 million).

Jang Sun-yoon, CEO of Bliss and granddaughter of Lotte Chairman-in-Chief Shin Kyuk-ho, followed suit this month by signing a contract to sell Bliss’s premium French bakery Fauchon to Maeil Dairy and Young Distribution.

“The government failed to carry out its shared growth campaign as it originally intended,” said Park Min-sik, who runs his own bakery in Daeheung-dong, northern Seoul. “What’s the point of a Samsung daughter pulling out of her bakery business? It was handed over to Daehan Flour, another Goliath.”

According to the Financial Supervisory Service, sales of Daehan Flour, which runs the popular Gompyo brand, reached 750 billion won last year. Maeil Dairy, which purchased 30 percent of Fauchon in a joint acquisition with Young Distribution, raised sales of 975 billion won in 2011. Its partner, which also distributes Phillip Morris cigarettes in Korea, acquired 50 percent.

According to Bliss, Fauchon bakeries raised 800 million won in monthly sales this year. Bliss did not disclose the exact value of the M&A deal, but media reports speculated that Fauchon was sold for 5 billion won.

In defending their moves, the two companies said they had no choice but to sell to big companies given the value of the respective transactions and to ensure good management.

Kim Yoo-chul, another baker in Gyeonggi, said it is just a matter of time before the public realizes that the government’s policy is proving ineffectual.

“Artisee already has 27 stores and Fauchon has seven. In all likelihood, their new owners will push for more growth and add rather than alleviate the burden on small bakers like me,” Kim said. “I’m already tired of people from SPC coming to my store and insisting that I convert it into one of their Paris Baguette franchises.

“They told me that if I don’t comply, they will just go ahead and open an outlet near my store anyway.”

Bliss spokesman Jang Seung-ho said it is misleading to say Fauchon was sold to a conglomerate.

“Is Young Distribution a conglomerate?” Jang said. “Our top priority was to find a company that can guarantee our staff keep their jobs, and we couldn’t just sell to a small enterprise lacking in both expertise and cash. If we didn’t act responsibility, many workers would have been made redundant.”

Downplaying its role, Maeil Diary said it will just provide butter, milk and cream for Young Distribution but will not participate in management as it remains a minority shareholder.

The dairy manufacturer has been aggressively expanding into the food business recently, having launched popular restaurants including The Kitchen Salvatore Cuomo, Buccella and Crystal Jade, as well as the cafe Paul Bassett. It also provides hamburger buns for McDonald’s Korea.

Regarding criticism that Maeil is threatening the livelihood of independently run restaurants, spokeswoman Park Jae-rang said that only 2 percent of the company’s revenue is generated from its restaurant businesses.

A senior official at the Commission on Shared Growth for Large and Small Companies said there are limits to how far it can push ahead with its campaigns because they are not legally binding. Rather, they are based on mutual agreements with conglomerates.

“Our goal is not driving conglomerates out of business,” said a senior official at the commission. “The commission exists because, without solving the problem of social polarization between conglomerates and SMEs, the latter cannot survive and our economy will not function properly. There are some limits to the current shared growth campaigns, but we will continue working to improve livelihoods of SMEs.”

The official added that premium bakeries run by chaebol scions pose less of a threat than Paris Baguette and Tous Les Jours, which are driving mom and pop bakeries out of business by opening stores adjacent to them.

The government has also excluded conglomerates with assets of excess of 5 trillion won from joining bids to run cafeterias at government offices and state-run organizations. However, SMEs have mostly been unable to capitalize on this business opportunity as affiliates of the larger companies have won most of the contracts.

This was evidenced when Korea Electric Power Corp. picked Dongwon Homefood, an affiliate of canned tuna maker Dongwon Group, to run its cafeteria last month.

“Ten of the 15 food distribution companies that joined the bid to run Kepco’s cafeteria were SMEs,” said an official at small food company. “In such an event, can the SMEs be seen as anything but maids of honor attending the marriage of the conglomerate’s relative?”

By Kim Mi-ju [mijukim@joongang.co.kr]

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