Lotte Confectionery Company Ltd.

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Lotte Confectionery Company Ltd.

23 Yangpyong-dong 4-ka, Youngdeungpo-ku
Seoul
South Korea
Telephone: +82 02 670 6114
Fax: +82 02 675 6600
Web site: http://www.lotteconf.co.kr

Public Company
Incorporated: 1948
Employees: 5,475
Sales: KRW 30 trillion ($1.09 billion) (2004)
Stock Exchanges: Seoul
NAIC: 311330 Confectionery Manufacturing from Purchased Chocolate

With a dual base in Korea and Japan, Lotte—known as Lotte Co. in Japan and as Lotte Confectionery Company Ltd. in Korea—is one of Asia's leading producers of confectionery and related products. The company's flagship is its line of chewing gums, and Lotte's brand family of chewing gums dominates its markets, with a market share of more than 60 percent in Japan, and similar levels in Korea. In addition to chewing gum, Lotte produces a wide range of candies, as well as cookies and other baked goods, and ice cream. Other operations under the company's direct control include the Lotteria chain of fast-food restaurants in Japan. The company has manufacturing and sales subsidiaries in Indonesia, China, Vietnam, the Philippines, and Thailand, as well as a production subsidiary in the United States. Together these operations combined to produce more than KRW 30 trillion ($1.09 billion) in annual sales in 2004. Lotte is itself part of the larger Lotte Group, controlled by the founding Shin/Shigemitsu family and company founder Shin Kyuk-ho (known as Takeo Shigemitsu in Japan). With interests including Lotte Shopping, Korea's largest department store group; the Lotte Hotel group; ownership of baseball teams (in Korea and Japan); travel and tourism; and real estate, including ownership of Lotte World, the world's largest indoor amusement park, shopping, entertainment, and hotel complex, Lotte Group is one of the ten largest corporations in Korea and one of the largest in the entire Asian Pacific region.

Bubble Gum Beginnings in the 1940s

Although later considered one of South Korea's largest companies, Lotte's origins actually traced back to post-World War II Japan. During the war, Shin Kyuk-ho, a native of Korea, came to Tokyo to study at a technical college in 1941 at the age of 19. After graduating, Shin remained in Japan, adopting the Japanese name of Takeo Shigemitsu. By 1946, Shigemitsu decided to go into business for himself, launching the Hikara Special Chemical Research Institute. This company produced soaps and cosmetics from surplus chemicals stocks left over from the war.

That company, although small, provided the basis for Shigemitsu's first fortune, and within a year he had amassed enough capital to launch a new company, dedicated to production of chewing gum. Introduced by American soldiers following the war, chewing gum quickly became popular among Japanese consumers eager to embrace all things American. In 1948, Shigemitsu founded Lotte Co., with ten employees. Shigemitsu's choice of the company's name came from his admiration for Goethe's Sorrows of Young Werther, particularly the character of Charlotte.

Using natural chicle, Lotte launched a number of chewing gum brands, including Orange Gum, Lotte Gum, Cowboy Gum, Mable Gum, and the highly popular Baseball Gum. The company backed up its products with strong advertising support, becoming one of the first in Japan to sponsor television programs, as well as its own baseball team and other events, such as beauty pageants. In the mid-1950s, the company sponsored the country's Antarctic Research Expedition Team, developing a chewing gum for the effort's training program. The company then launched the gum, known as Cool Mint Gum, for the consumer market, in 1956. The gum featured a penguin on the package, which became one of the country's most prominent consumer logos into the next century. Another Lotte sponsoring effort was the Lotte Music Album show on television, a popular music-oriented program that ran through the late 1970s.

Shigemitsu expanded his production interest to include candies, cookies, and snack cakes, and by the early 1960s, the company had established itself as a rival to Japan's two largest confectionery groups, Meiji and Morinaga. The company's true breakthrough came during the 1960s, with its entry into the chocolate market. In 1964, the company launched its first milk chocolate, called Ghana, adapting Swiss-styled chocolates for the Japanese palate. The company supported this launch with a massive television advertisement campaign, firmly positioning the brand in the minds of consumers. The launch paved the way for Lotte's emergence as the number one chocolate manufacturer in Japan by the end of the century.

Although Lotte had successfully established itself as a truly Japanese company—in a country where ethnicity had always been a prominent part of the national identity—Shigemitsu had not abandoned his Korean roots. Lotte had established a presence in Korea as early as 1958, opening a factory producing chewing gum and other confectionery, as well as instant noodles, for the Korean market. The normalization of diplomatic relations between Japan and Korea in 1965, however, presented a new opportunity for the company. Lotte decided to move into Korea on a full scale, and in 1967, the company established a dedicated operation for South Korea, called Lotte Confectionery Co.

Adding Korean Operations in the 1960s

It was not long, however, before Shigemitsu—or, rather, Shin—found himself in trouble with the Korean government, then still under military dictatorship. The South Korean government was then in the process of building up its military strength as part of its cold war with North Korea. Seeking to establish its own industrial defense capacity, the government approached Shin with a request for him to contribute to this effort, encouraging him to enter military production as well.

Yet Shin, perhaps mindful of the negative publicity that a move into arms production would bring to the company's confectionery sales, refused. The refusal brought a series of difficulties for Lotte Confectionery, which finally were resolved by the direct intervention of then president Park Chung-Lee. Rather than agree to invest in the country's defense effort, Shin agreed to transfer the center of Lotte's operations to South Korea. Lotte Confectionery now became the core of Shin's growing empire; nonetheless, the original Lotte Co. and the Japanese market remained the company's largest confectionery operation.

The move to Korea, however, opened a whole new series of business opportunities for Shin and for Lotte. Korea at the time had just begun its own effort to establish itself as one of the Asian region's industrial and technological giants, and Shin proved a shrewd investor, expanding the company's business interests to include department store ownership (the group's Lotte Shopping became the country's leading retailer); hotel ownership, through Lotte Hotels, created in 1973, and including Hotel Lotte Seoul, the largest in that capital city, in 1979; travel and tourism; and restaurant and convenience store operations. The company branched out into the outright ownership of baseball teams, buying up the Tokyo Orions (which became the Lotte Orions) in 1969, and also acquiring Korea's Giants and the Marines of Chiba, Japan, in 1971. Meanwhile, real estate development also became a prominent part of the company's growing empire, and later included Lotte World, the world's largest indoor amusement, entertainment, shopping, and hotel complex, opened in 1989.

These investments helped Lotte grow into one of Korea's top ten conglomerates by the end of the 20th century. Yet Lotte's diversification drive, unlike those of rivals such as Samsung, Hyundai, LG, and Daewoo, avoided an entry into heavy industrial operations, and instead focused on the light industry and services sectors. In Japan, for example, the company launched its own chain of fast-food restaurants, Lotteria, which shrewdly traded on its well-known and highly popular brand name. The first Lotteria opened in 1972, and by the end of that year the store had opened stores in Nihonbashi, Ueno, and Yokohama, before rolling the chain out on a national scale.

Another company extension was the creation of Lotte Denshi, which began developing novelty products such as lighters, pocket warmers, and cooler pouches, but also health foods and other goods. Closer to the group's core was the launch of its Lotte Trading subsidiary, founded in 1958, into the frozen desserts market in 1972.

Lotte launched its own bakery and baked goods operations in the early 1980s, including the establishment of subsidiary Mutter Rosa Co. in 1982. That company opened a string of bakeries, featuring freshly baked breads and related products. Through the 1980s, Lotte built up its backbone as well, adding subsidiaries involved in data processing, logistics and transportation, and machinery development, maintenance, and repair.

Company Perspectives:

We will always continue to take on new challenges based on three core themes. User Oriented. We think from the customer's perspective. First, we think about what is important for our customers. We provide them with products and services that enhance richer lives and greater satisfaction. This is the spirit that infuses our corporate philosophy. Originality. We continue to seek unique ideas. We constantly challenge ourselves to define new and unique products and services. This stance requires a total effort to develop new areas of business and advance into global markets with our challenging spirit, which is an important intangible asset. Quality. We will strive to achieve the highest quality in every aspect of our business. We have been making progress based on our philosophy, which places the highest value on quality as expressed in our slogan of 'sincerely producing the highest quality products made using the highest quality ingredients.' We will continue to insist on the highest quality, which enables our customers to enjoy the good taste and comfort of our family of quality products.

The company also continued to innovate with new confectionery products. These included the launch of the highly successful ice cream, Yukimi Daifuku, in 1981, and of the "half-unbaked cake" Choco Pie in 1983. The company created a new candy category, the "throat candy" with the launch of Nodo Ame in 1985. Lotte also enjoyed success with a number of new chewing gum brands, such as the sugarless Blueberry and the Giant chewing gum, both launched in 1993.

International Success in the New Century

In the 1990s and 2000s, Lotte turned to the international market for further growth. The company had made its first international extension, other than in Korea, in the late 1970s. In 1978, Lotte set up a subsidiary in the United States, opening production facilities in Battle Creek, Michigan. The group's U.S. presence later expanded to include a sales office in Chicago, supporting sales of the group's chewing gums and cookies.

In the 1990s, Lotte turned to markets closer to home. The company established a subsidiary in Thailand in 1989, where it began producing and distributing candy and confectionery. In 1993, Lotte entered Indonesia, launching a subsidiary in Jakarta. This was followed by the creation of a joint venture for the mainland Chinese market, which established production facilities in Beijing in 1994. The company acquired full control of its Chinese operations in 2005. The Philippines became part of the Lotte empire in 1995, with the launch of a sales and distribution subsidiary in Manila. One year later, the company added production and sales operations in Ho Chi Minh, Vietnam, as well.

Continuing product development brought the company new successes as well. In 1996, the company launched its Chocolate Zero, claiming to be the world's first sugarless chocolate. The following year, Lotte became the first in Japan to launch a xylitol-based chewing gum. Because xylitol, unlike other sweeteners, did not produce acid when chewed, the company was able to promote its chewing gum as a cavity-fighting product. The company's interest in developing xylitol-based products continued into the 2000s, including the launch of the Xylitol Family Bottle, a beverage containing xylitol as a sweetener. In 2005, the company launched its Lotte Notime tooth-polishing chewing gum.

Lotte expanded its frozen dessert operations in 2002, forming a joint venture with troubled Snow Brand Milk Products, then involved in a beef-labeling scandal. The joint venture, Lotte Snow Co., was owned at 80 percent by Lotte, and launched production of Snow-branded ice cream products. In 2005, the company expanded its operations in China, buying up control of Qingdao-based Jinhu Shipin. That move was seen as part of the group's strategy to become a major confectionery group on a global scale. Lotte remained controlled by Shin Kyuk-ho, joined by his children and other family members. In less than 60 years, Shin had built Lotte from a small chewing gum producer into one of the world's top confectionery groups.

Principal Subsidiaries

Lotte China Foods Co., Ltd.; LOTTE Co., Ltd. (Japan); Lotte Confectionery Co. Ltd. (Korea); LOTTE Frozen Dessert Co., Ltd. (Japan); Lotte Hotel (Japan); Lotte Philippines Co., Inc.; Lotte Shopping Co. Ltd. (Korea); LOTTE Snow Co., Ltd. (Japan); LOTTE Trading Co., Ltd. (Japan); Lotte U.S.A., Inc.; Lotte Vietnam Co., Ltd.; LOTTERIA Co., Ltd. (Japan); Nihon Food Distribution Co., Ltd. (Japan); PT. Lotte Indonesia; Thai Lotte Co., Ltd. (Thailand).

Principal Competitors

Taiwan Sugar Corporation; Central Group of Cos.; Meiji Seika Kaisha Ltd.; Katokichi Company Ltd.; Ezaki Glico Company Ltd.; Lamson Sugar Co.; Morinaga and Company Ltd.; August Storck KG; Ferrero S.p.A.; Fujiya Company Ltd.

Key Dates:

1948:: Korean native Shin Kyuk-Ho (also known as Takeo Shigemitsu) launches the Lotte chewing gum company in Japan, named after Charlotte, a character in Goethe's Sorrows of Young Werther.
1967:: Lotte launches Lotte Confectionery in Korea, which becomes the focus of the Lotte Group's diversified development.
1978:: The company launches U.S. production and a sales subsidiary.
1989:: The company enters the Thai confectionery market; Lotte World, the world's largest indoor amusement part complex, opens.
1993:: The company opens a production subsidiary in Jakarta, Indonesia.
1994:: Lotte enters the Chinese market through a production joint venture in Beijing.
1995:: Sales to Indonesia begin.
1996:: The company launches a production and distribution subsidiary in Vietnam.
2002:: The company forms the Lotte Snow Co. frozen dessert joint venture with Snow Brand Milk Products in Japan.
2005:: Lotte acquires control of a confectionery production company in Qingdao, China.