Strict limits set on expansion of restaurant, bakery chains

Strict limits set on expansion of restaurant, bakery chains. February. 06, 2013 05:59. yhkang@donga.com.

SPC Group’s Paris Baguette cannot open a new store within 500 meters from a domestic bakery for three years starting next month. CJ Foodville’s VIPS Restaurant and TheBornKorea’s Saemaeul Restaurant are banned from opening new branches for three years beginning in April.

The Commission on Shared Growth for Large and Small Companies held its 21st meeting at Seoul Palace Hotel Tuesday and selected 14 subcategories in the service sector and two in manufacturing as items for small and mid-size businesses. The subcategories are subject next month to recommendations that will limit branch expansion for three years in phases.

○ Ban on new bakery and restaurant chains started by large companies

Bakery chains owned by large companies such as Paris Baguette and CJ Foodville’s Tous Les Jour cannot open a new branch within 500 meters from existing bakeries. They can open new franchises but the number should be less than 2 percent of the number of their stores at the end of last year.

“Shop-in-shop” brands, which are located inside retail buildings such as department stores and hypermarkets, and retailers owned by large companies will have no limits as long as they do not open a store outside a retailer.

Large restaurant chains cannot open new branches falling under seven categories: Korean, Chinese, Japanese, Western, foreign, flour-based food and gimbap (sushi rolls), and others. Exceptions to the rule include mixed-use facilities, commercial venues near subway stations, new cities and newly developed areas including more than 3,000 apartment units.

○ Little control over non-Korean companies

The commission`s decision was met with a strong backlash from the businesses affected. An SPC source said, “There are as many as 10,000 domestic bakeries but there are few commercial areas where we can open a new branch. Given that 50 to 60 of our stores close every year, the decision is practically a ban on new stores.” CJ Foodville said, “The recommendations asking us to open a new store within 500 meters from domestic bakeries are a double whammy for us following the distance limit by the Fair Trade Commission.” The company`s bid to globalize Korean cuisine through its restaurant chain Bibigo could suffer as a result of the new regulations.

Critics say the recommendations have many problems. A case in point is mid-size companies that started as small-scale bakeries and restaurants such as TheBornKorea and Nolbu NBG. A source from the Korea Medium Industries Association said, “It`s absolutely wrong to use the same standard on mid-size companies and large corporations with assets of more than 5 trillion won (4.6 billion U.S. dollars).”

Another problem is the difficulty on sanctioning non-Korean companies who could claim discrimination. Domestic companies consider the commission`s recommendations mandatory but forcing the suggestions on foreign companies could ignite lawsuits. For example, punishment of the U.S.-based chain Outback Steakhouse and Morgan Stanley’s Nolbu NBG will prove elusive if they reject the recommendations.

Yoo Jang-hee, chairman of the Commission on Shared Growth for Large and Small Companies, said, “We always welcome sound investment by foreign companies in Korea,” adding, “In case of a subsidiary or a branch of a large non-Korean company, we will consult with foreign agencies in charge of reviewing their large companies such as the U.S. antitrust division.”

○ Restriction on reference book sales at large bookstores

The shared growth commission selected buckwheat flour and plastic bags as items for small companies from among 16 product categories. DongA One Food supplies cannot sell buckwheat in traditional markets for three years from July. Lotte Aluminum, Hanwha Polydreamer, CJ, and Yulchon Chemical cannot produce plastic bags containing goods and household supplies from next month.

Fourteen subcategories in the service sector were designated, including bakeries and restaurants, as businesses suited for small businesses. Large companies including Kyobo Life Insurance (Kyobo Bookstore), and Youngpoong (Youngpoong Bookstore) from next month must freeze sales of reference books for public school students to last year`s level. If either chain opens a new branch, it cannot sell such reference books for 18 months. The commission also announced a proposal for shared growth suggesting that large bookstores should show the location of smaller bookstores on their websites.

LS Networks, which operates bicycle retailer Biclo, has been asked to cut the revenue share of its retail business from 90 percent to less than 50 percent. The commission also decided to limit the entry of public agencies and large companies in the flower retail market and improve the fee system.

Large companies related to the sale of second-hand cars should freeze the number of branches. They and public companies also cannot bid for public procurement in the operation of vending machines. Daesung Industrial, a retailer that sells gas to households, has been advised to close its business.