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[Weekender] Franchise bakeries look beyond Korean market

Almost ubiquitous in Seoul, bakery chains seek higher growth overseas

If one were to randomly walk into a bakery in just about any urban neighborhood in Seoul, there is a high likelihood that it is either a Paris Baguette or a Tous Les Jours.

Neither is French. They are Korean brands, respectively run by SPC Group, the market’s undisputed leader, and CJ Foodville, a unit of local conglomerate CJ Group.

Armed with a systematic production and distribution system, big-budget marketing campaigns and a wide product range, the franchise bakeries have rapidly expanded to become the dominant players in the market, pushing out smaller, independent bakeries to the edges.

Every day, SPC, which owns Korea’s No. 1 bakery brand Paris Baguette and Paris Croissant, as well as the bread manufacturer Shany Co., produces roughly 10 million items. To give a rough estimate of the numbers, if one were to take the group’s annual output of some 3.67 million “Danpatbbang,” or sweet red bean buns, and align the 11-centimeter-wide pastries, the line would circle the Earth ten times.

People pass by a Paris Baguette store in New York. (SPC Group)
People pass by a Paris Baguette store in New York. (SPC Group)

Last year, SPC, which also operates Baskin Robbins Korea and Cafe Pascucci, among other chains, racked up nearly 4.2 trillion won ($3.77 billion) in sales revenues, with some 3,500 domestic and 180 overseas Paris Baguette stores accounting for roughly 1.6 trillion won.

With its outlets almost ubiquitous in Seoul streets now, growth has slowed. Its rapid expansion, which came at the cost of the businesses of small mom-and-pop bakeries, drew criticism, sparking the government to introduce a new regulation.

In March 2013, the Korean Commission for Corporate Partnerships established measures to prohibit franchise bakeries from opening a new branch within 500 meters of an independent bakery. Moreover, they are mandated to keep their annual branch expansion rate under 2 percent.

“Since the introduction of the measures, our operating profits increased by 0.4 percent last year while sales revenue rose by just 0.11 percent from 2013 to 2014,” said the SPC representative. “It’s a significant drop from the two-digit growth we had been achieving in previous years.”

Seeking growth, large bakery companies are now taking their brand to overseas markets, tapping into countries in East Asia, the U.S. and recently in Europe, considered the mecca of bread making.

Since 2004, SPC Group has forayed into global markets to operate 120 Paris Baguette stores in China, 39 in the U.S., eight in Vietnam and six in Singapore. In July 2014, a new Paris Baguette store opened in Paris ― a city steeped in centuries of tradition and experience in baking.

SPC Group President Huh Young-in in January vowed to record more than 10 trillion won in sales revenue and operate 6,000 shops in 60 countries by the year 2020, as the group celebrates its 70th anniversary this year.

“SPC’s global strategy is centered on differentiation, maintaining high quality, being premium and successful localization,” the group said in a statement.

The ambitious sales target is “reflective of the company’s ambitious goal to step up its overseas business over the next five years,” according to the SPC representative.

CJ Foodville has been also been busy expanding its Tous Les Jour branches abroad, beginning with the first overseas store in the United States in 2004. Though it launched only two new stores domestically in 2014, the company opened 32 new stores overseas the same year.

Having opened seven new branches abroad this year, Tous Les Jours now operates 172 stores in the U.S., China, Vietnam, Indonesia, Malaysia, Cambodia and the Philippines.

“Tour Les Jours plans to expand into new global markets by signing new master franchise deals in Southeast Asian countries that we have yet to enter,” Tous Les Jours said in a recent statement.

By Sohn Ji-young (jys@heraldcorp.com)
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