KORAIL Distribution Changes Bidding Criteria
Proposes Monthly Fee of 130 Million Won
The Seongsimdang Daejeon Station branch, which was facing the risk of suspension of operations, is now more likely to continue its business without relocating. This is because KORAIL Distribution issued a new recruitment announcement with a significantly adjusted commission rate.
On the 13th, KORAIL Distribution announced a new recruitment notice for partner companies with revised bidding criteria. According to the announcement, the average sales amount ranges from a minimum of 2.212 billion KRW to a maximum of 3.318 billion KRW, and the monthly commission fee payable to KORAIL Distribution is 133 million KRW. This is not much different from Seongsimdang’s current monthly commission of 100 million KRW, so it appears that Seongsimdang can maintain its location. The store operation period stated in the new announcement is five years starting from November this year.
Customers are selecting bread at Seongsimdang, a representative attraction of Daejeon. Photo by Heo Young-han
Seongsimdang has been operating the store by extending the lease contract, which expired in May, until October, but the operation of the Daejeon Station store after October was uncertain due to repeated bidding failures. This was because there was a significant difference in opinions between KORAIL Distribution and Seongsimdang. Previously, KORAIL Distribution proposed a monthly commission of 441 million KRW for the store before the contract ended. This 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 known that Seongsimdang paid about 100 million KRW monthly in rent to KORAIL Distribution over the past five years.
Because of this, KORAIL Distribution was criticized for raising the commission fee excessively. In response, KORAIL Distribution stated, "It is not true that the commission was raised excessively within one year," adding, "This store signed a fixed rent lease contract with Korea Railroad Corporation in 2016, and according to the auditor’s opinion, the contract was changed to a commission rate contract with KORAIL Distribution in April 2021." They continued, "During this process, by agreement between the contracting parties, the store operated at a rate significantly lower than the minimum bidding commission rate, and considering the auditor’s recommendation to ensure fairness with other commercial facilities, the recruitment announcement conducted before the expiration of Seongsimdang’s contract proposed a bidding amount based on the same standards applied to all commercial facilities."
KORAIL Distribution explained, "The method of paying commissions 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, industry type, number of bidders, and economic conditions. The proposing business operator decides the rate within the pre-notified minimum and maximum limits and participates in competitive bidding."
However, as the store repeatedly failed in competitive bidding, the monthly commission fee continued to decrease. According to the regulation that for commercial facilities that fail bidding more than twice, the standard amount is reduced by 10% up to 30% from the third announcement, the standard amount in past bids dropped to 353 million KRW. Additionally, since the lease business type for the Seongsimdang store location was limited to "general bakery" and the monthly rent still exceeded 300 million KRW, no companies other than Seongsimdang participated in the bidding. Ultimately, the store failed in bidding up to the fifth round, and the commission fee was reduced by about 70% compared to the amount proposed in the first announcement (441 million KRW).
KORAIL Distribution is accepting proposals for the store location until the 23rd. They plan to select the final operator for the store on the 26th using a combined evaluation method with a total score of 100 points, reflecting 40% quantitative and 60% qualitative evaluation ratios.
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