CJ dreams to build new kingdom in US with massive investment

CJ Group, a major South Korean conglomerate with a wide range of businesses spanning everything from food to bio, livestock feed, logistics, entertainment and retail, has embarked on a new mission to take a quantum leap in the US after its sales in the world’s biggest consumer market quadrupled in four years.

Its franchise and restaurant business unit CJ Foodville Corp. is in the frontline of the group’s US expansion quest this year, with a plan to break ground on a bread-making factory in the southern US in the second half of this year, according to sources in the bakery industry on Wednesday.

The upcoming US bread production facility is expected to help its bakery franchise brand Tous les Jours bring the number of its US bakery shops to 1,000 from the current 93 in the country under the mid- and long-term plan.

CJ Foodville has chosen the US as a key market for Korea’s second-largest bakery franchise because it is allowed to operate a maximum of 1,300 franchise outlets across its home country under Korea’s law that bans large conglomerates from aggressive business expansion that could obstruct competition given their dominant market positions.

The company is seeking to springboard again based on its business in the US, a CJ Foodville official said.

This is just one of the Korean conglomerate’s big plans in the world’s No. 1 consumer market.

CJ Group is seeking to annually invest billions of dollars in other businesses such as bio and media businesses in the US, where the awareness and reputation of Korean brands have recently increased among local consumers thanks to the ongoing K-culture boom, said a CJ Group official.

The US is also a highly predictable market unlike other markets such as China, the official said, adding that CJ’s global expansion hinges on its success in the US.

ON THE HUNT FOR EXPANSION IN THE US

When CJ picked the US as its strategic market about five years ago, its move was considered rare and unconventional because other consumer product companies all focused on China or Southeast Asia as their key markets at that time.

Under its new vision to lead the US market, CJ immediately kicked off its aggressive M&A deals in the country.

In 2018, its logistics arm CJ Logistics Corp., which is Korea’s largest logistics provider, acquired American logistics company DSC Logistics founded in 1960 in Chicago. The latter in 2021 was rebranded as CJ Logistics America LLC after it was combined with CJ Logistics USA and CJ Logistics Canada.

A year later, its food business unit CJ CheilJedang Corp. took over a major US food company Schwan’s Company for 2 trillion won ($1.5 billion), the group’s biggest-ever acquisition deal since its inception in 1953.

Its hunt for new opportunities in the US continued, leading its media business CJ ENM Co. to make its most expensive-ever buyout of Endeavor Content's scripted business in 2021.

The Beverly Hills, California-based Endeavor, now renamed Fifth Season, is an American production company best known for distributing blockbusters such as “La La Land.” The Korean entertainment powerhouse owns an 80% stake in it, while Endeavor Group Holdings has the remaining 20%.

Over the past five years, CJ has spent about 6.2 trillion won in total to acquire leading US companies in various sectors.

BET ON SCHWAN’S, A STROKE OF GENIUS

Its aggressive expansion endeavor has paid off, driving the growth of its businesses in the US. CJ raked in 8.3 trillion won in US sales in 2022, up 37.5% from the year previous and more than four-fold from 2018.

Schwan’s has proved to be a golden goose, shrugging off earlier concerns that CJ could suffer a winner’s curse after its acquisition.

Of CJ’s total US sales from food businesses last year, Schwan’s sales accounted for more than 80%, with 3.3 trillion won sales. CJ’s food business in the US led by the American food giant saw operating profit up 77.7% on-year to 97.6 billion won in the first three months of this year when its parent CJ CheilJedang suffered a 58.8% fall due to weak consumer spending and the slowdown in the bio sector.

Schwan’s late last week completed a 40,000-square-meter (400,000 square feet) expansion of its frozen pizza factory in Salina, Kansas, which now boasts the world’s biggest 90,000-square-meter pizza manufacturing facilities, equivalent to 12 soccer fields.

It is also expanding a refrigerated distribution center at the Salina pizza factory to 245,000 square feet by early 2025. The distribution center will be responsible for delivering not only Schwan’s pizzas but also CJ’s Bibigo brand products such as frozen dumpings.  

Thanks to generous investments from its Korean parent, the American food giant’s top frozen pizza brand Red Baron has narrowed the gap in the US frozen pizza market with market leader DiGiorno of Nestle by 1 percentage point.

CJ BRAND RECOGNITION ON THE RISE IN THE US

Following its successful inroads in the US, coupled with the K-culture boom, America’s awareness of CJ brands has significantly improved in recent years.

CJ Group companies currently run 22 manufacturing facilities in 29 states in the US, which hire about 12,000 employees across the nation.

This is the third biggest investment by a Korean company in the US after Samsung and Hyundai Motor.

Perhaps it was CJ that paved the way for the current Korean culture boom in the US, not the other way around.

Write to Soo-Jung Ha at agatha77@hankyung.com

Sookyung Seo edited this article.