A Lotteria spokesman explained that it was a regular audit. But according to a newspaper report, the company is suspected of creating a slush fund by expanding Burger King Japan outlets even though the business is constantly losing money. 

“Because Lotteria is one of the main links of the 416 cyclical shareholding structures in Lotte, this could be the start of many other tax investigations of other affiliates,” a tax expert was quoted as saying.

Lotte Shopping is the largest shareholder of Lotteria, with a 38.68 percent stake, followed by Hotel Lotte (18.77 percent). L Investment and other Lotte affiliates hold a 15.5 percent stake.

The Fair Trade Commission’s report expected to be released somewhere around September is also a burden for Lotte. The investigation delves into whether fast-food franchises, including Lotteria, have coerced unfair contracts with the franchisees and exaggerated promotions or publicities.

Activists of People’s Solidarity for Participatory Democracy, Korean Confederation of Trade Unions and others held a protest in front of Lotte headquarters in central Seoul on Tuesday urging the country’s fifth-largest conglomerate to come up with measures following chairman Shin’s vow to prioritize the public’s interest over its own.

The groups suggested that Lotte refrain from advancing into industries that are dominated by small companies, hire contact workers as regular ones, give more respect to its subcontractors, dissolve all cross-shareholding governance structures as the chairman pledged, and bring more transparency in its motion pictures distribution businesses.

On top of such moves, Lotte’s business rivals are also seeking to replace its dominant status in the duty-free sector. According to sources, other retail giants -- Hyundai Department Store Group and Shinsegae Group -- have set up a task force to win the business licenses for urban duty-free stores in Seoul currently being run by Lotte. The license will be renewed in December.

“Rumors are rife that Lotte may lose its license to run duty-free stores in Sogong-dong, central Seoul, and Jamsil in southern Seoul.

“Lotte may have to consider shutting down the business should it lose the license, as these urban duty-free stores are cash cows making up for the losses at the outlets in Incheon International Airport that require trillions of won in rent, ” he added.

The chairman is set to soothe the public sentiment by reviewing large cash donations for various CSR projects, a local report said.

“But because Lotte’s brand image has plummeted due to the succession fiasco, Shin will need to do more,” an industry source said.

Meanwhile, in its efforts to simplify its governance structure, the group said Wednesday it plans to hire lead managers to proceed with the planned initial public offering of Hotel Lotte. The final list will be revealed in early September, it said in a press release. Industry sources forecast the group will also push for IPOs of other affiliates, such as convenience store chain 7-Eleven and Lotteria.

By Bae Ji-sook (baejisook@heraldcorp.com)