Lotte eyes overseas coffee mix market with Nestle tie-up

Lotte eyes overseas coffee mix market with Nestle tie-up

Wednesday, February 5, 2014 – 14:40

Bae Ji-sook

The Korea Herald/Asia News Network

SOUTH KOREA – Lotte joined hands with Nestle, the world’s largest food maker, to target the overseas market where a growing number of people are starting to appreciate the taste of Korean-style instant coffee mix.

On January 27, Lotte Food, the food manufacturing division of the country’s fifth-largest business conglomerate, established LOTTE-Nestle (Korea) Co. with Nestle Korea after investing 50 billion won (S$58 million) in a 50 per cent stake.

The new firm will produce an instant coffee mix consisting of powdered coffee and cream, along with powdered chocolate, fruit beverages, coffee creamer, pet foods and Nestle Professional brand items.

As the country’s largest retailer with department stores, discount stores and supermarkets, Lotte will have no problem getting the products on store shelves, the company said.

In return, Lotte expects to take full advantage of Nestle’s production line and technology to venture overseas.

“Nestle’s coffee mix produced at the Cheongju plant is already sold in about 30 countries around the world including the US, Japan and China. The joint firm will enable Lotte Food to become a global foodmaker,” said Lotte Food CEO Lee Young-ho.

His words indicated Lotte’s hopes for the domestic coffee mix market, which has lately been overshadowed by roasted coffee or “takeout coffee” as it’s most consumed as takeout from coffee shops.

According to market insiders, the Korean coffee mix market was worth 1.3 trillion won last year after seeing 0.11 per cent growth from 2012. In contrast, the roasted coffee market was worth 1.7 trillion won.

Domestic market leader Dongsuh, which partnered with US foodmaker Kraft to create the “Maxim” coffee brand, holds an 81.2 per cent share of the coffee mix market, followed by Namyang’s “French Cafe” with 13.4 per cent and Nestle with 3.9 per cent. Market insiders say the Lotte-Nestle alliance is unlikely to shake up Dongsuh’s status.

Dongsuh, however, cannot go abroad because it is not authorised to use the Maxim brand outside of Korea. The foodmaker only sells coffee creams overseas.

On the other hand, Namyang has been playing in the growing coffee mix market in the US, China, Japan, Australia and Central Asia with its French Cafe mixes. By 2016, Namyang aims to sell 100 billion won worth.

“China is seeing a rise in instant coffee mixes, but it hasn’t caught on in Japan yet. These two countries are thus the market target for coffee mix makers, including Lotte and Nestle,” said one market watcher.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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