South Korea’s Lotte Group descends into chaos

Lotte Group, the multinational conglomerate with headquarters in South Korea and Japan, who also runs South Korea’s third largest brewing group, descends into chaos.  Lee In-won  the company's highest-ranking executive outside the founding family allegedly committed suicide two weeks ago . The 69 year old executive who had been with the company for more than 40 years was found dead hours before a scheduled appearance at a prosecutors' office where he had to report on slush funds, embezzlement and tax evasions at Lotte Group.


Since last summer Shin Dong-bin (61), younger son of 93 year old founder Shin Kyuk-ho, demoted his father to honorary chairman from general chairman overseeing Lotte's business in Japan and South Korea. He also removed his older brother, Shin Dong-joo (62) from several executive positions within the group. The battle between the two brothers might have attracted the prosecutors' attention. The authorities could have even obtained documents leaked by both sides in order to denigrate the other one.


The battle has already weighed on the group's performance and could in the long run also affect the group’s brewing business.


Lotte Chilsung Beverage, established in 1950 had been continuously developing and launching several beverages like cider, carbonated drinks, juices, coffee, tea, water, whiskey , soju, rice and plum wines before launching the first beer in 2014. Its Kloud beer which is brewed by using 100 per cent malt and using German recipes is a huge success and accounted instantly for 16% of all beers sold at large supermarkets. Kloud is slightly more expensive than other domestic brands as it is targeted as an alternative to pricey imported beers, rather than cheap domestic ones. Since South Korean regulations are much less stringent on use of malt than in other countries most domestic  beer brands are low-malt beers with a watery taste.


Beer is the mostly consumed alcohol in South Korea, accounting for 49 percent of all alcohol consumption in 2015. Last year about 21.3 million hectoliters were produced and 23.4 million hectoliters were sold in South Korea. National market leader is Oriental Brewery (OB) which is owned by AB InBev and had a total volume share of 56% in 2014. In the last years OB lost sales for its leading Cass brand to growing beer imports and Lotte’s new Kloud beer. The same can be said for HiteJinro, the number two in the market with a market share of 30%. Number three is Lotte Chilsung Beverage. Lotte did not only cover a niche in the market but could also take profit from a lack of attention to the domestic market of the two market leaders who were focusing successfully on expanding their export business mainly to neighboring Asia markets.


In June 2011 South Korean government eased regulations on breweries supplying beer to locations under their ownership thus allowing microbreweries to enter the market. Still, small take only 0.1 and 0.2 percent of the market and the number of businesses have been declining since 2005.

Imports of beer to South Korea grew from 2.8 percent in 2010 to 8.4 percent five years later. From a total of 87 countries in 2015 Japanese brands lead the imported beer market, with 29 per cent by value, followed by German (13.2 percent) and Irish (11.5 per cent).


Lotte Group consists of a variety of over 60 business units engaged in diverse industries like hotels, entertainment, publishing, fast food, beverages, candy, retail, financial services, electronics, IT, construction and heavy chemicals. The group was founded shortly after second world war in Japan and expanded in 1967 to South Korea where it is nowadays the eighth largest business conglomerate. In addition to Japan and South Korea Lotte operates businesses in China, Thailand, Indonesia, Malaysia, Vietnam, India, USA, UK, Russia, Philippines, Pakistan and Poland. The company names derive its name from the character Charlotte in Johann Wolfgang von Goethe's novel The Sorrows of Young Werther (1774).

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