[Exclusive] "That Fancy Cafe, Visiting with Kids Costs at Least 50,000 Won"... For Owners, Passing Down the Business Is a Profitable Move

[The Secret Behind Bread Prices] (17) Large Bakery Cafes
27 in 2014 → 137 in 2024
Consumers Face Burden of High Menu Prices

Editor's Note
According to the consumer price trends released by Statistics Korea, while the prices of processed foods rose by 4.1% year-on-year in May, bread prices surged by 6.4%. The consumer price index for bread reached 138.48, marking a 38.48% increase over five years compared to the base year of 2020 (100). This rise outpaces even popular Korean snacks like tteokbokki and fried chicken. Bread, once a snack enjoyed by everyone, has now become an item with a price tag that makes it difficult to choose casually. How did bread prices in Korea end up climbing so steeply?

Citizens are choosing bread at a bakery in Seoul. Photo is unrelated to specific expressions in the article. Photo by Yonhap News.

Large bakery cafes have drawn attention as a means of minimizing inheritance and gift taxes, leading to a more than fivefold increase in their numbers over the past decade. These large bakery cafes often set higher menu prices due to premiumization strategies and significant labor costs, prompting complaints among consumers that they are a driving force behind rising bread prices.

27 in 2014 → 137 in 2024... Fivefold Increase

According to data submitted by the National Tax Service to the office of Assemblyman Park Sunghoon of the People Power Party and obtained by Asia Economy on October 3, the number of large bakery cafes nationwide with a floor area of at least 330 square meters (100 pyeong) stood at 137 as of last year. Riding the wave of rising bread prices, the number jumped by nearly 30 in just one year, from 109 in 2023.

The number of large bakery cafes has steadily increased each year: 27 in 2014, 26 in 2015, 28 in 2016, 33 in 2017, 40 in 2018, 45 in 2019, 56 in 2020, 75 in 2021, 87 in 2022, 109 in 2023, and 137 in 2024. This marks an approximate fivefold increase over the past decade, with double-digit growth rates every year since 2020.

The tax-saving effect is cited as one of the factors behind the proliferation of large bakery cafes. Typically, when parents gift land to their children, a gift tax of up to 50% is imposed. For assets with a taxable base of up to 100 million won, a 10% rate applies, but for amounts exceeding 3 billion won, the highest rate of 50% is levied. For example, gifting land worth 5 billion won to a child would result in about 2 billion won in taxes.

However, if a bakery cafe is built on land owned by the parents and passed on as part of a family business, a "special gift tax exemption" can be applied, significantly reducing the tax burden. This system applies when a parent, as the business owner, transfers the family business to a child. After a 1 billion won deduction, a 10% tax rate is applied to the taxable base up to 12 billion won, and a 20% rate to the excess. As a result, for the same 5 billion won, the tax drops to about 400 million won, making the tax-saving effect clear compared to a standard gift.

However, to benefit from the gift tax reduction through family business succession, certain conditions must be met. The donor must have managed the business for at least 10 years, and the recipient must be at least 18 years old and be appointed as CEO within three years of the gift. The recipient must also retain the CEO position for five years thereafter, and business suspension or closure is restricted.

The scope of eligible businesses is also limited. Under current law, the special gift tax exemption for family business succession applies only to certain industries, including the restaurant business. Bakeries are classified as part of the restaurant business and are thus eligible, but regular coffee shops are categorized as "non-alcoholic beverage establishments" and are excluded. Therefore, to receive the tax benefit, one must establish a corporation whose main business is operating a bakery cafe, run it for at least 10 years, and then transfer the corporate shares to a child. Despite these stringent requirements, the tax-saving effect makes it a "profitable business" in the eyes of many.

Regarding this, Assemblyman Park Sunghoon stated, "There have been repeated criticisms that the family business succession system is being abused as a loophole for tax avoidance," adding, "A thorough review and strengthened post-management and supervision are necessary to prevent the original intent of the system from being undermined and to stop it from becoming a channel for wealth transfer."

Consumer Burden Rises Due to Rent and Labor Costs Included in Prices

Citizens are choosing bread at a bakery in Seoul. Photo is unrelated to specific expressions in the article. Photo by Yonhap News.

As large bakery cafes proliferate, the burden of bread prices on consumers is increasing. Many of these establishments set higher prices than regular bakeries, leveraging upscale interiors and brand image. Due to the need to operate expansive spaces and employ numerous staff, the high labor costs borne by business owners are reflected in menu prices.

For instance, at a large bakery cafe in Gapyeong, Gyeonggi Province, a salted bread costs 4,200 won, an Americano is 5,800 won, and a signature latte is 9,000 won. These prices are noticeably higher than the average at franchise bakeries. Considering that franchise salted bread is around 3,000 won and Americano and latte drinks are generally priced between 4,000 and 5,000 won, the price burden on consumers is inevitably significant. According to the "Bakery Industry Market Analysis and Major Regulatory Competition Impact Assessment" report prepared by Kongju National University Industry-Academic Cooperation Foundation at the request of the Fair Trade Commission, "Bakery cafes that operate both a cafe and bakery in one space are on the rise," and "large-scale independent bakeries have increased their profits, while small independent bakeries operate at price levels not much different from franchises."

Lee Jeongin, a 37-year-old office worker, said, "You might visit a large bakery cafe once or twice to take photos and enjoy the atmosphere, but the price makes it hard to come often. Smoothies and slices of cake, which my children often eat, are even more expensive, so it's not easy to order them. Especially since many large cafes require one drink per person, a family of four ends up spending over 50,000 won."