Lotte’s Rakhat acquisition part of well-mapped strategic plan, says Mintel

By Oliver Nieburg

- Last updated on GMT

Lotte's expansion strategy "makes good sense", according to an analyst from market research company Mintel
Lotte's expansion strategy "makes good sense", according to an analyst from market research company Mintel

Related tags Russia Lotte

Korean firm Lotte’s recent acquisition of Kazakstan’s leading confectioner forms part of a carefully planned expansion strategy that gives it a “jumping board” to Russia and Central Asia, according to an analyst at Mintel.

Lotte acquired a 76% stake in Kazakh candy maker Rakhat in July for $157m.

It follows a number of other high profile acquisitions by Lotte in the past decade, including a $164m deal for Guylian​ in Belgium in 2008, an estimated $250m buy of Wedel​ in Poland from Kraft Foods in 2010 and a $18m outlay for Pakastani firm Sulemanji Esmailji in the same year.

Marcia Mogelonsky​, director of insight at Mintel, told ConfectioneryNews: “The decision to expand its presence and control in central Asia, given the geographic regions in which the company has already established itself, makes good sense.”

Kazakh confectionery market

Rakhat has two production facilities - one based in Almaty and the other in Shymkent

Through the Rakhat acquisition, Lotte has entered the $1.93bn Kazkah confectionery market as the leading player with a 10% market share.

“Like Russians, Turks and other eastern European and Central Asian consumers, it seems that Kazakhstanis have a sweet tooth and Lotte will be able to grow sales within the country as well as outside of it,”​ said Mogelonsky.

According to the analyst, Kazakhstan’s economy is growing and confectionery is among the country’s top exports.

Rakhat was established in 1942 and claims to have a leading position across the chocolate, sugar confectionery and biscuit categories in Kazakhstan. It employs around 4,000 people and posted 2012 sales of KZT 29.4bn ($197m).

CIS expansion

Mogelonsky said that Lotte may use Kazakhstan as a “jumping board”​ for other markets.

Lotte said in a filing to the Korea Exchange that it was aiming to expand into the Commonwealth of Independent States (CIS) through its entry in Kazakhstan.

The CIS is made up of former Soviet countries that formed after the breakup of the USSR.

Russian expansion & Soviet brands

Rakhat owns a string of former Soviet brands that could potentially limit its export potential to Russia.

According to sources, these Rakhat’s Soviet brands cannot be exported to Russia or Belarus.

Mongelsonky added that Russia’s recent ban on imports from Ukrainian chocolatier Roshen showed that Russia seemed “to have a number of issues with its former territories”.

Lotte opened its first Russian factory in Obninsk in 2010, which produces its Choco Pie brand for the Russian market.

Lotte will finalize the Rakhat deal, subject to regulatory approval, in the second half of this year – after which it intends to buy the remaining 24% stake in the firm.

Next move: Lotte eyeing Kandia-Excelent or Turkey?

Mogelonsky said the Rakhat buy was in keeping with the company’s strategy "to become one of Asia's top 10 business groups by 2018”.

“If it wants to solidify its holdings it may also consider looking at Kandia-Excelent in Romania. But It may be that the company will eye a property in Turkey next, as a way of solidifying its position in Eastern Europe and Central Asia.”

Kraft Foods sold former Cadbury-owned business Kandia-Excelent to investment fund Oryxa Capital in 2010.

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