[비즈한국] Financial pressure on Choroc Village, currently undergoing rehabilitation procedures, appears to have intensified. The use of its logistics center has been suspended due to unpaid rent, and its directly-operated stores are also being closed down sequentially. While the company is pushing for a pre-packaged M&A, the failure to secure a buyer so far is increasing the uncertainty surrounding its rehabilitation.
Liquidity Worsens, Logistics and Store Downsizing Accelerates
Choroc Village, an eco-friendly and organic food retailer, has once again extended the deadline for submitting its rehabilitation plan. On the 20th, the Seoul Bankruptcy Court announced that it has pushed back the deadline for Choroc Village's plan from the original March 26 to April 24. This marks the third extension this year, following those in January and February. Industry observers note that the formulation of Choroc Village's rehabilitation plan is being delayed more than expected.
As the rehabilitation process drags on, Choroc Village's financial capacity has weakened significantly. Recently, the company applied to the court for 'permission to conclude a third-party logistics contract and pay logistics expenses.' Third-party logistics (3PL) is a method of outsourcing delivery and storage to external firms. This represents a shift from its previous internal logistics system, which was operated directly based on its own logistics center, to an outsourced structure.
It is reported that Choroc Village had to opt for 3PL because it could no longer use its existing logistics center. The background to this is a problem with unpaid rent. Choroc Village had been leasing the logistics center, but as payments were delayed, arrears accumulated. While the facility provider initially granted a grace period, the long-term nature of the situation due to delayed sale procedures made continued use impossible, ultimately leading to their eviction.
Since being acquired by Jeongyookgak in 2022, Choroc Village had transitioned its logistics structure, which was previously centered on outsourcing, to an in-house operation. The strategy was to improve product freshness and delivery quality by incorporating the 'ultra-fresh delivery' model that Jeongyookgak touted as its strength. However, due to weakened financial capacity, this strategy became difficult to sustain, and as a result, logistics operations have returned to an outsourced system.
Store operations are also facing setbacks. Recently, Choroc Village has been filing for the cancellation of jeonse rights and lease agreements, primarily for its directly-operated stores, as it begins to liquidate offline locations.
An official from the Choroc Village Emergency Committee said, "Directly-operated stores are often located in prime spots, so the deposit amounts are large. Stores that can be partially offset by deposits are being maintained, but others are being closed as landlords demand evacuation," adding, "The liquidation is currently underway, and there is a possibility that the number of stores will decrease further in the future."
In fact, the number of Choroc Village stores is declining rapidly. The number of stores has dropped from 292 in July last year, when it entered rehabilitation, to 220 currently. This is a reduction of about 25% in eight months.
Back on the Market 3 Years After Acquisition… Valuation Plummets
Choroc Village is an organic food specialty retailer established in 1999. It was acquired by the Daesang Group in 2009, put up for sale on the M&A market in 2022, and eventually acquired by the online livestock distribution startup Jeongyookgak. Jeongyookgak planned to expand its business scope by combining its online distribution network with Choroc Village's offline competitiveness.
Jeongyookgak acquired a 99.57% stake in Choroc Village for approximately 90 billion won, a heavy investment considering the scale of the company. It is known that Jeongyookgak even provided its own headquarters as collateral to raise the acquisition funds. The plan was to turn Choroc Village profitable and then attract additional investment. The problem was that Choroc Village's performance did not improve as much as expected.
As Choroc Village's losses continued and the investment market shrank rapidly, Jeongyookgak struggled to secure additional funding. Eventually, in July last year, Jeongyookgak and Choroc Village filed for the commencement of rehabilitation procedures with the Seoul Bankruptcy Court. Since then, Choroc Village has begun a pre-packaged M&A process, returning to the market just three years after its acquisition.
The market's view has changed drastically in three years. When Choroc Village was up for sale in 2022, it was already chronically loss-making, but the acquisition race was unexpectedly popular. Companies including Jeongyookgak, Barogo, Kurly, and E-mart139480 Everyday submitted letters of intent, showing keen interest.
Conversely, the atmosphere has now completely cooled. Choroc Village pushed for a pre-packaged M&A through a public competitive bidding process last December, but has yet to secure a buyer. While due diligence is continuing, there is little sign of it leading to an actual transaction. Choroc Village, which was sold for about 90 billion won amidst a hot bidding war just three years ago, is currently valued at a liquidation value of around 12 billion won.
The emergency committee is currently working to persuade creditors to ensure the continuation of business. An official from the committee emphasized, "If Choroc Village disappears, store owners will lose their initial investments, transfer value, and their means of survival. Producers will also lose a sales outlet they have maintained for 25 years," adding, "If the major sales channel for organic producers disappears, the entire eco-friendly and organic ecosystem will inevitably be shaken. This is the reason why Choroc Village must be maintained."
It is reported that the committee has also proposed to the creditors a plan to restructure Choroc Village into a regional hub-based social solidarity platform. The plan is to build a sustainable rehabilitation model where producers, franchisees, and consumers thrive together by turning the communal value and experience of offline stores into assets.
The official said, "The committee is working around the clock to find investors and sound out acquisition intentions to come up with self-rescue measures," and added, "Choroc Village's survival is an issue intertwined with the entire organic ecosystem. We hope that entities that can consider both business and public interest based on an understanding of the eco-friendly organic industry will take interest."