Lotte, Nestlé Set Up 50:50 Joint Venture Targeting Korean Coffee Market

Korean conglomerate Lotte Group and Nestlé, the world’s largest food company, forged a partnership to target the Korean instant mixed coffee market valued at 1.2 trillion won (US$1.1 billion).

Lotte is seeking to improve quality using the Swiss-based firm’s plants in the country and to increase profits through exports of Nestlé products. Nestlé, on the other hand, intends to restore its pride in the local market. As a result, the success or failure of Nestlé regaining the runner-up position is receiving a lot of attention in the industry. In 2012, NamYang Dairy Products Co. unseated Nestlé to become the second-largest producer of instant mixed coffee in the nation.

Lotte Food announced on January 27 that it decided to participate in Nestlé Korea’s paid-in capital increase with an investment of 50 billion won (US$46.4 million) and buy a 50 percent stake in the Korean unit of Nestlé.

The reason for the two firms’ partnership lies in the fact that their interests to make a breakthrough in the market fit together well. In 1987, the Swiss-based food giant worth 150 trillion won (US$139 billion) entered the local market with Taster’s Choice, but lagged far behind Dongsuh Food, Korea’s largest instant coffee product manufacturer. Last year, Nestlé tried to turn the tables on competitors with the amalgamation of its brands into Nescafé. However, its sales in 2013 amounted to just 370 billion won (US$343 million), comprising merely 3.7% of the total Korean market, which led to rumors that Nestlé Korea might pull out of the local market entirely.

Nestlé is not alone in experiencing poor sales performance. Even though Lotte is involved in the instant mixed coffee business through Lotte Chilsung Beverage with the brand, Cantata, it only makes up 1%, an extremely minimal market presence. Nevertheless, the company believes that the combination of its distribution capability and Nestlé’s production skills can create synergy. Furthermore, the Korean food and beverage firm is planning to maximize profits by exporting locally-made products.