Lotte Confectionery to merge with Lotte Food

Lotte Group will merge its confectionery and foodstuff businesses, South Korea's fourth-largest conglomerate announced Wednesday.

Lotte Confectionery’s planned takeover of Lotte Food will go through an approval process at the general shareholders’ meeting on May 27. The target completion date is July 1. 

The merger will place the confectionery juggernaut as the No. 1 producer of packaged snacks and ice cream in South Korea. In the entire food sector, it will be the second-largest player after CJ CheilJedang Corp. with combined revenue of 3.7 trillion won ($3 billion).

BACK TO NO. 1 

“We need the decisiveness to go where no one else has been,” Lotte Group chairman Shin Dong-bin said during an executive-level board meeting held earlier this year. The second son of Lotte Group founder Shin Kyuk-ho emphasized the need for the Korean-Japanese conglomerate to recover what he dubbed “No. 1 DNA.”

The confectionery arm is called the "Root of Lotte."

The group’s founder Shin Kyuk-ho returned to South Korea from Japan in 1967 and began his business on the peninsula by selling chewing gum.

Since then, the company had been Korea's top producer of snacks and ice cream until Orion took over the top position in 2020.

The merged company will manufacture the whole gamut of foodstuffs -- from ice cream, baked goods, nutritional food, meal kits, processed meat to coffee. 

Lotte Group subsidiaries have not fared as well as their counterparts such as CJ CheilJedang and Orion in entering the overseas markets. Owing to the popularity of Korean pop culture around the globe, especially K-pop and Netflix hits, Korea’s leading food makers have enjoyed robust sales in recent years. 

South Korea's fifth-largest conglomerate wants to utilize the food arm’s competitiveness and the confectionery arm’s eight overseas entities to build the foundation to become a global player. 

As part of the economy of scale strategy, the soon-to-be combined Lotte Confectionery will also merge some of its brands domestically. 

A Lotte Confectionery employee explained: “The latest merger is aimed at proactively adapting to the rapidly changing food and beverage industry by utilizing the two companies’ infrastructure to provide customized and digitized services.”

Lotte Confectionery is about twice as big as Lotte Food in terms of market capitalization and revenue. Its operating profit is a whopping three-fold that of Lotte Food.

A person familiar with the latest decision told The Korea Economic Daily that the confectionery arm is not just its founding business but an area in which the group will need to nurture into its future bread and butter. “The merger is the first step in its leap to becoming a global food corporation,” the person added. 

PRIORITIES

The first task is to combine the ice cream businesses of the two subsidiaries – to become the industry’s biggest player. 

In September 2020, the Korean local antitrust authority approved Binggrae Co.’s acquisition of Haitai, then-No. 4 player in the market. Lotte Confectionery will be the biggest player in South Korea’s ice cream business after the merger, surpassing Binggrae. 

The confectionery and food subsidiaries' e-commerce platforms will also merge to gain a competitive edge online. 

The company will seek professional consulting to bolster its e-commerce division in the long term. It is also considering building its own logistics center depending on the professional consulting advice it receives.

The aim is to expand the percentage of its online sales from the current below 10% of the overall to more than 25% by 2025.

The company also plans to woo new demographics. 

“We will shift our portfolio that encompasses baby formula to food specialized for the elderly,” a Lotte Confectionery employee said. 

Write to Sul-Li Jun, Han-Shin Park, Jong-Kwan Park at sljun@hankyung.com
Jee Abbey Lee edited this article.