[Asia Economy Reporter Eunmo Koo] Lotte Confectionery officially launched a new integrated corporation through a merger with Lotte Foods on the 1st of this month. With the launch of the integrated corporation, Lotte Confectionery is expected to actively pursue new business expansions to improve the efficiency of its existing operations and overcome growth stagnation. This merger was structured as Lotte Confectionery absorbing Lotte Foods as the surviving company. On May 27, at an extraordinary general meeting of shareholders, Lotte Confectionery finalized the merger by approving the merger resolution of the two companies.
With the completion of the merger, a mega food company with sales reaching 3.7 trillion KRW as of last year was born. It ranks first in the confectionery and ice cream sectors and is the second largest food company overall, following CJ CheilJedang. The integrated corporation’s business areas are expected to cover the entire food industry, including ice cream, bakery, health functional foods, home meal replacements (HMR), meat processing, dairy products, coffee, and food ingredients.
The CEO of the integrated corporation will be Younggu Lee, the current CEO of Lotte Confectionery. Lee concurrently served as head of Lotte Group’s Food Business Unit and CEO of Lotte Confectionery at the end of 2020, and in the regular executive personnel reshuffle last November, he was appointed as the head of the Food HQ within the group. Lee previously led the integration of Lotte Chilsung Beverage and Lotte Liquor, which were operated under separate CEOs in the beverage and liquor business divisions, contributing to the profitability improvement of Lotte Chilsung.
Through this merger, Lotte Confectionery expects to reduce overlapping management elements and efficiently utilize human and physical resources, thereby improving operational efficiency. Ultimately, this is expected to improve the company’s financial structure and profitability. Although Lotte Confectionery and Lotte Foods each hold strong market dominance in their respective fields, key businesses such as confectionery, oils, and dairy products are facing growth stagnation. Recently, the business environment has been rapidly changing with the acceleration of online channel transitions and rising raw material prices, requiring more agile market responses than before. In this context, the merger is seen as an opportunity to respond integrally to market changes, improve efficiency, and explore various new business opportunities based on an expanded portfolio.
Jungwon Eom, a senior researcher at Korea Ratings, said, “Since Lotte Foods’ profitability is lower than Lotte Confectionery’s, profitability indicators may slightly decline after the merger, but if the purchasing, production, and distribution networks of the two companies are integrated and overlapping businesses consolidated, operational efficiency will improve.” He added, “The merger with Lotte Foods, which has a relatively strong financial structure, will also improve financial stability indicators such as debt ratio and dependence on borrowings.”
In the short term, there is high expectation for strengthened competitiveness through the integration of overlapping ice cream businesses. The domestic ice cream market is worth 1.4 trillion KRW, and as of the first half of last year, Binggrae led with a combined market share of 40% (Binggrae 28.0% + Haitai 12.3%). However, with this merger, the combined market share of Lotte Confectionery (30.6%) and Lotte Foods (14.7%) will exceed 45%, changing the leading position.
The e-commerce organizations, which were operated separately, are also expected to undergo unification. By integrating their own malls, they aim to increase operational efficiency and plan to expand the e-commerce organization in the mid to long term. Through online business strategy consulting and other measures, they are reviewing dedicated logistics centers, aiming to increase the online sales ratio, currently below 10%, to over 25% by 2025.
New businesses and overseas operations for mid- to long-term growth are also expected to accelerate. Until now, the two companies have faced difficulties in aggressively expanding similar new businesses such as senior food and health foods, but through the merger, they will build a food portfolio covering the entire life cycle from infant formula to silver food, strengthening brand competitiveness. Additionally, Lotte Foods, which was mainly domestic-focused, is expected to actively expand overseas sales by utilizing Lotte Confectionery’s overseas sales network.
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