South Korea's Lotte Confectionery Company, the country's largest snack food manufacturer, has acquired a 100 per cent stake in a Chinese confectioner - a move which will not only bolster its influence among China's fragmented confectionery sector, but also help it move one step closer to catching up with number one gum giant Wrigley, Tom Armitage reports.
Lotte , which already has an estimated 14 per cent stake in the world's chewing gum market, confirmed last week that it had acquired a 100 per cent stake in Jinhu Shipin of Qingdao in China for US$14.88 million (KRW15 billion).
Last year Jinhu Shipin notched up a US$4.9 million (KRW5 billion) turnover and the new company will be called Lotte Quingdao Foods.
Lotte commented that its latest acquisition would help it achieve its ambition of becoming a "stronger player in a global market" and having its own manufacturing base inside China will inevitably bring down long-term distribution costs, as well as up margins.
Although Lotte's core business remains in Korea, last year it entered into a joint venture agreement with Indian food and beverage manufacturer Dharampal Satyapal (also known as the DS Group) in an attempt to exploit the country's burgeoning demand for gum-based confectionery and continue the overseas rollout of its flagship brand, Lottegum.
Lotte already has an interest in the Indian confectionery market, through its arrangement with Chennai-based Parry's Confectionery, and has since outlined its intention to move into a number of other product areas including chocolate confectionery, biscuits and ice creams.
According to industry analysts Euromonitor International , the Chinese confectionery market was worth US$4.6 billion (KRWB38.6 billion) in 2004 and achieved a 46.3 per cent value growth increase from 1999-2004.
Sugar confectionery, including jellies, lollypops and lozenges, continues its negative growth spiral, while sales of medicated, functional sugar confectionery are gaining momentum among increasingly health-conscious Chinese consumers.
Functional gums, particularly those made with Xylitol, are currently one of the fast-growing confectionery categories in China - although sugarised gum continues to dominate the sector.
Lotte, together with gum giant Wrigley (which is also the leading gum player in China), account for 50 per cent value sales of the overall Chinese confectionery market.