[Why & Next] SPC Surrounded by 'Naewooeohwan'... What Is the Breakthrough?

CEO Kang Sun-hee Resigns Followed by CEO Hwang Jae-bok's Detention
Government Pressure for 'Price Reduction' Amid Management Vacuum
ESG Risks Followed by Judicial Risks 'Shaking'

SPC Group is facing a management vacuum crisis. Following the resignation of CEO Kang Seon-hee just one year after her appointment, co-CEO Hwang Jae-bok was arrested on charges of union disruption. The company has been struggling with 'ESG (Environmental, Social, and Governance) risks' due to a worker's death accident at a bakery factory, and now it is also facing judicial risks. Additionally, government pressure to lower bread prices amid falling wheat prices is adding to the burden on its performance.

According to industry sources on the 13th, CEO Hwang was arrested on the 4th on charges of forcing bakery workers at Paris Baguette franchise stores to leave the union. Hwang is accused of giving personnel disadvantages to members of the Korean Confederation of Trade Unions' Hwaseom Food Union Paris Baguette branch for three years starting from July 2019. PB Partners, a subsidiary of SPC Group responsible for recruiting and training Paris Baguette skilled workers, is involved in this case.

[Image source=Yonhap News]

Unprecedented Absence of Co-CEOs... Concerns Over Decision-Making Delays and Franchisee Damage

Earlier, co-CEO Kang suddenly resigned after one year in office on the 2nd. It is known that Kang stepped down to help her husband Kim Jin-mo, a People Power Party preliminary candidate for Seowon District, Cheongju City, Chungbuk Province, with his election campaign ahead of the April general election. Kang, a former judge, was promoted to president of SPC Group last year and was in charge of legal affairs, government relations, and public relations.

Following Kang's resignation and Hwang's arrest, SPC Group is now facing an unprecedented 'absence of CEOs' situation. An industry insider said, "The absence of CEOs can lead to a management vacuum, which can be fatal to a company," adding, "Especially since CEO Hwang also heads Paris Croissant, which has about 4,000 franchise stores including Paris Baguette and Pascucci, delays in decision-making could cause harm to franchisees."

In addition to the charges of forcing union withdrawal, CEO Hwang is also accused of bribery. He is suspected of receiving various investigative information, such as requests for search warrants, from a level-6 prosecutor's investigator from September 2020 to May last year when SPC Group Chairman Huh Young-in was under investigation for breach of trust. In return, Hwang is alleged to have provided SPC gift certificates worth about 6.2 million KRW, golf outings, and meals. This has raised the possibility that the current prosecution investigation may extend to Chairman Huh as well.

Fair Trade Commission's Investigation from Kickback Accusations to Prosecutor's Inquiry... SPC's Ordeal

This case began when the Fair Trade Commission (FTC) imposed a fine of 64.7 billion KRW on SPC in July 2020 for unfairly supporting SPC Samlip through its affiliates and reported Chairman Huh Young-in and CEO Hwang to the prosecution. At that time, the FTC claimed that SPC affiliates such as Paris Croissant, SPL, and BR Korea inserted SPC Samlip into the process of purchasing raw materials from eight affiliates including Milda One and Egg Farm, unfairly supporting Samlip by 41.4 billion KRW over seven years.

The FTC argued that SPC's bakery affiliates attempted to raise the stock price of SPC Samlip, which is 33% owned by Chairman Huh, his eldest son Huh Jin-soo (president), and his second son Huh Hee-soo (vice president), to use it in succession. The prosecution also indicted Chairman Huh and CEO Hwang in December 2022 on charges of breach of trust under the Act on the Aggravated Punishment of Specific Economic Crimes, alleging that they transferred Milda One shares at a low price to evade gift taxes imposed on the Huh family.

However, after four years of legal battles, SPC won the case. The Seoul High Court rejected all the FTC's claims, including the flour and raw material kickback transactions, unfair support through Milda One stock transactions, unfair support through the transfer of Shani sales networks, and unfair support through trademark use. The court ruled that "there were problems with the application of the Fair Trade Act to unfair support acts" and ordered most of the fines to be canceled.

Chairman Huh was also acquitted of breach of trust charges in the first trial last month. The court judged that Chairman Huh had no criminal motive to sell Milda One shares at a low price.

This case, which seemed to have been settled with the ruling, took a new turn last month when the prosecution arrested and indicted both sides on charges of receiving bribes from SPC Group executives in exchange for providing investigative information during the investigation of Chairman Huh and others for breach of trust.

Pressure to Lower Bread Prices Amid Falling Wheat Prices

SPC Group is also facing government pressure to reduce prices. The Ministry of Agriculture, Food and Rural Affairs will hold a meeting with food company CEOs on the 13th to discuss prices. This is the first such meeting in five months since October last year. The government is expected to seek cooperation for price stabilization by gathering food industry leaders after consumer price inflation rose again to the 3% range in February due to a surge in agricultural product prices. About 20 companies, including SPC, CJ CheilJedang, Ottogi, Nongshim, and Lotte Wellfood, are expected to attend.

Especially since Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok mentioned the international wheat price decline, pressure to lower processed food prices is anticipated. At a price-related ministers' meeting on the 6th, Minister Choi said, "Although international grain prices have fallen by about half from their peak in 2022, this has not been properly reflected in the prices of flour and cooking oil, causing high inflation," adding, "If prices were raised due to rising raw material costs, they should be lowered promptly and properly when prices fall for the public to accept it as reasonable management."

Since flour accounts for a large portion of SPC Group's raw materials, this has become a significant burden. In July last year, SPC Samlip and Paris Baguette lowered prices on 30 products. Considering the rising costs of raw and subsidiary materials and labor, further price reductions are difficult. In fact, SPC Samlip, a core affiliate of SPC Group, is estimated to have recorded sales of 3.4927 trillion KRW last year, up 5.37% from the previous year, and operating profit of 93.7 billion KRW, up 4.71%. Although operating profit growth has not stopped, it is a modest figure compared to the over 20% growth for two consecutive years driven by the Pok?mon bread boom.

The food industry views that SPC's long-term performance could deteriorate as judicial risks and government price reduction pressures add to the consumer boycott following a worker's death accident at the Shani bakery factory in Seongnam, an SPC affiliate, last year. An industry insider said, "SPC Group has continued performance growth based on its overwhelming market share, but this sector is also undergoing rapid changes, such as delivering cakes through Coupang," adding, "If the management vacuum is not filled and the company's image does not improve, performance could worsen."

Some suggest that early succession of President Huh Jin-soo might be considered for SPC Group to escape the crisis. As of September last year, the shareholding structure of SPC Samlip shows Chairman Huh holding 4.64%, President Huh 16.31%, and Vice President Huh Hee-soo 11.94%. President Huh currently leads SPC's global business. However, an SPC official said, "At present, nothing can be confirmed regarding management succession."

This content was produced with the assistance of AI translation services.