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Family behind Paris Baguette loses billions by taking on the world

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Its stores are dotted around Manhattan, Singapore and Shanghai with blue neon signs that virtually scream France: The words Paris Baguette, separated by an Eiffel Tower logo.

[NEW YORK] Its stores are dotted around Manhattan, Singapore and Shanghai with blue neon signs that virtually scream France: The words Paris Baguette, separated by an Eiffel Tower logo.

Yet the family behind the chain is South Korean - and it has bet a large chunk of its fortune that the rest of the world will warm to its baked goods, often featuring a subtle twist for Asian palates, such as buns stuffed with red-bean filling and pastries that fuse hot dogs.

In the past few years, SPC Group has expanded to 6,000 locations globally, even planting its flag in Paris. So far, it has proved a pricey bet.

Chairman Hur Young-in and his family - worth about US$3.6 billion five years ago - are left with some US$770 million, according to the Bloomberg Billionaires Index. SPC Group's net income has slumped 77 per cent since a high in 2016, partly because of the losses from overseas investments it's betting on. Domestically, it has also taken a hit as shares of its SPC Samlip, focused more on local consumers, have slid 84 per cent from a high in 2015.

This shouldn't be too much of a concern in the short term, says Han Yu-jung, an analyst at Daishin Securities Co.

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"It makes sense for food and beverage retailers to make losses in the early stage of overseas expansion," said the analyst from Seoul. "Their brands have higher recognition in the local market but it's a different story elsewhere."

A SPC Group spokesperson declined to comment on the losses, while Mr Hur declined an interview for this story.

Now, even as Covid-19 hammers the food industry, forcing closures and layoffs at other companies, SPC Group remains undaunted. It said last month it will venture into Canada and Mr Hur plans to increase the number of the group's outlets worldwide to 20,000 by 2030.

SMALL BAKERY

What's now SPC Group started as a small bakery set up by Mr Hur's father in 1945 in a town that's now part of North Korea, according to local media reports. Three years later, the elder Mr Hur moved the business to Seoul in the south, where it flourished.

Mr Hur went to Kansas to learn his baking skills from the American Institute of Baking. After returning home, he took over one of the family's brands in 1983, while his older brother led the main unit. In 1986, Mr Hur launched Paris Croissant, a French-style bakery, and Paris Baguette came two years later. His brother's business went bankrupt in 1997 after costly attempts to expand into areas beyond food and bakery, and Mr Hur acquired it in 2002, giving way to SPC Group in 2004.

To grow further, Mr Hur had to look farther afield. The global expansion began in 2004, when SPC opened a Paris Baguette in Shanghai. Then came the US: first Los Angeles in 2005, and New York eight years later.

There was another motivation, too: To leave room for smaller enterprises, the South Korean government recommended in 2013 limiting the number of new bakeries large companies could open, meaning expanding abroad was the suitable way to grow.

"It's hard to aggressively expand its franchise business in the domestic market," said Daishin's Mr Han. "Overseas expansion is needed as a growth driver."

Now, there are almost 300 Paris Baguette outlets in China and more than 80 in the US selling up to 300 products - from breads to pastries and cakes.

BAKERY CULTURE

"Paris Baguette introduced Koreans to the European bakery culture," said Young Choi, vice-president and head of global support division at SPC Group. "Based on our bakery skills and marketing strategy, we've expanded to other countries, including France, known as the home of bread, and are trying to promote a new food culture."

SPC Group has also brought brands to South Korea, including Baskin-Robbins and Dunkin' Donuts, and has expanded into restaurants and wine imports. After launching Shake Shack at home in 2016, it won the right to operate the US burger chain in Singapore, where it aims to have more than 10 outlets by 2024.

Mr Hur and his family own Paris Croissant, the de facto holding arm of SPC Group. About one-fifth of its revenue comes from Paris Baguette's overseas outlets. The family also controls about 74 per cent of publicly traded SPC Samlip, which operates more domestic franchises and distributes food ingredients.

SPC Group reported consolidated net income of 19.2 billion won (S$22.4 million) last year, an almost 10 per cent increase from 2018, but down from a high of 85.2 billion won in 2016. Revenue growth at SPC Samlip has slowed to about 10 per cent from 36 per cent in 2016. The coronavirus outbreak didn't help: The company reported a 16 per cent drop in revenue for the first three months of the year compared with the previous quarter.

"We were affected by the coronavirus when it started to spread," the SPC Group spokesperson said. "Some stores in the US and China opened for shorter hours. Now things are gradually being normalized."

So far, the group has managed to avoid layoffs and store closures, though the outlets have relied on delivery services to keep up sales during the pandemic. In the US, a study showed in May that almost two-thirds of publicly traded restaurants are at risk of bankruptcy, further hurting an industry already upended by broad stay-at-home orders that led to sharp declines in eatery sales.

That won't stop Mr Hur's global ambition.

"Breads are enjoyed more by people outside South Korea," Mr Hur was quoted by local media as saying in 2016. "The overseas market is bigger and more opportunities will come."

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