Another Failed Auction... Is Seongsimdang Daejeon Station Branch Really Closing?

No Other Bidders Besides Seongsimdang
Monthly Rent 300 Million Won VS 100 Million Won, Gap Still Large

The operation of Seongsimdang Daejeon Station branch is facing the risk of suspension. The famous bakery Seongsimdang in Daejeon participated in the bidding for the Daejeon Station store but was once again unsuccessful.

On the 15th, the Korea Railroad Distribution Chungcheong Headquarters announced the results of the evaluation for selecting a new operator for the second-floor waiting room inside Daejeon Station after a review by the evaluation committee for recruiting specialty store operation partners. Seongsimdang participated in the bidding again this time but was eliminated after receiving a score of zero in the quantitative evaluation. As with previous bids, only Seongsimdang participated in this bidding.

On May 17th, Yoo In-chon, Minister of Culture, Sports and Tourism, visited Seongsimdang Daejeon Station branch and had a conversation with CEO Lim Young-jin.
[Photo by Yonhap News]

In the evaluation by the Korea Railroad Distribution evaluation committee, Seongsimdang received an average score of 18.53 out of 20 in the non-quantitative evaluation, meeting the criteria. However, it received zero points in the quantitative evaluation, which assesses commission rates and contract deposits, due to lack of evaluable content, resulting in failure to meet the evaluation standards. Seongsimdang currently leases and operates a 300㎡ (approximately 91 pyeong) store in the second-floor waiting room of Daejeon Station, but the store operation contract expired last month. Since then, Korea Railroad Distribution has been conducting a competitive bidding process to find a new operator.

Rosso Co., Ltd., which operates Seongsimdang, is reported to have offered the same monthly commission fee of 100 million KRW (5%) as before. Earlier, Korea Railroad Distribution proposed a monthly commission fee of 441 million KRW for the store before the contract ended. This amount was calculated by applying a minimum commission rate of 17% to Seongsimdang’s average monthly sales of 2.598 billion KRW, which is more than four times the previous rent. It is reported that Seongsimdang paid about 100 million KRW in rent to Korea Railroad Distribution every month for the past five years.

Because of this, Korea Railroad Distribution faced suspicions of unreasonably raising the commission fee. In response to growing suspicions, Korea Railroad Distribution stated in a press release on the 17th of last month, "It is not true that the commission fee was unreasonably raised within one year," and explained, "This store signed a fixed rent lease contract with Korea Railroad Corporation in 2016, and in April 2021, based on the opinion of the audit agency, the contract was changed to a commission rate contract with Korea Railroad Distribution." They added, "During this process, by agreement between the contracting parties, the store was operated at a rate significantly lower than the minimum bid commission rate, and considering the audit agency’s recommendation to ensure fairness with other commercial facilities, the bidding amount was presented under the same standards applied to all commercial facilities in the business partner recruitment announcement conducted before the expiration of Seongsimdang’s contract."

Korea Railroad Distribution explained, "The method of paying commission based on sales according to the contract rate is widely used by many public institutions and distribution industries," and added, "The commission rate can vary depending on various factors such as location conditions, business type, number of bidders, and economic conditions, and the proposing business operator decides the rate within the pre-notified minimum and maximum limits to participate in the competitive bidding."

However, as the store repeatedly failed in the competitive bidding, the monthly commission fee continued to decrease. According to regulations that reduce the base amount by 10% up to 30% from the third announcement for commercial facilities that have failed bidding more than twice, the base amount in past bids dropped to 353 million KRW. Also, since the tenant business type for the Seongsimdang store location was limited to "comprehensive bakery," and the monthly rent still exceeded 300 million KRW, no companies participated in the bidding.

Seongsimdang is currently operating the store by extending the expired lease contract until October, but due to continued bidding failures, the operation of the Daejeon Station store after October remains uncertain. Meanwhile, recently, Lee Jang-woo, mayor of Daejeon, mentioned that if the re-contract between Korea Railroad and Seongsimdang fails, there is an alternative plan. On the 30th of last month, Mayor Lee said, "Daejeon City also has an alternative plan for Seongsimdang leaving Korea Railroad," and added, "There is a space operated by the Korea Transportation Corporation in front of Daejeon Station that is the size of the current store."