Bakery franchise regulations undergo major overhaul after 11 years

Tous Les Jours flagship store CheilJedang Center Branch. [Courtesy of CJ Food Ville]

South Korea is expected to undergo a major overhaul in the Bakeries Coexistence Agreement introduced in 2013 to protect small businesses for the first time in 11 years.

The current restriction that prevents large franchise bakeries from opening within a 500-meter radius of local bakeries will be relaxed to 400 meters. The cap on the number of new franchise bakery openings, which was limited to 2 percent of the previous year’s total, will also be increased to 5 percent.

According to the National Commission for Corporate Partnership (NCCP) and the bakery industry on Monday, the NCCP, major bakery franchises, and the Korea Bakery Association have agreed to extend the Bakeries Coexistence Agreement for another five years, with the final text of the agreement currently being adjusted.

The NCCP was established to address and constructively discuss social conflicts arising between large corporations and small and medium-sized enterprises.

“There is a consensus to ease the regulations under the Bakeries Coexistence Agreement,” said an NCCP representative. “We plan to finalize the details after one or two more meetings before the agreement expires.”

The agreement was initially introduced to protect the business rights of local bakeries by designating bakeries as a small business sector in 2013, effectively blocking the opening of franchise stores.

Although the agreement was converted into a coexistence agreement in 2019, little had changed.

As a result, while large franchise bakeries like Paris Baguette and Tous Les Jours saw a decrease in the number of their stores, independently operated bakeries saw significant growth.

According to the Seoul Metropolitan Government, the number of franchise bakeries fell from 1,377 in the first quarter of 2021 to 1,254 in the first quarter of last year.

In contrast, the number of independently operated bakeries increased from 3,143 to 3,218 during the same period.

The Korea Bakery Association, composed of local bakeries, has reportedly agreed to easing the regulations to a certain extent.

The increasing number of businesses selling bread, such as cafes and convenience stores, has somewhat alleviated competition with franchise bakeries.

The mass-produced bread market, sold through these channels, continues to grow.

According to market research firm Euromonitor, the size of the mass-produced bread market increased from 725.8 billion won ($525 million) in 2021 to 849.7 billion won last year.

The entry of new players into the market while Paris Baguette and Tous Les Jours remain stagnant has also contributed to the association’s softened stance.

According to the NCCP, new franchises such as Paikdabang’s Bread Lab operated by Theborn Korea will also be added to the list of brands subject to franchise restrictions.

“We will discuss reducing the opening restriction radius to 400 meters and implementing it for 2-3 years before considering further easing,” said an official from the Korea Bakery Association.

While the franchise industry welcomes the revised agreement, it feels the changes fall short of expectations.

Paris Baguette said that despite the relaxed opening restriction radius, the nationwide store count of around 3,400 makes new openings challenging.

Tous Les Jours expects to open an additional 20-30 stores.