LOTTE Wellfood is considering the sale of its baking business. According to the distribution industry on the 20th, LOTTE Wellfood recently distributed an investment guide containing the status of its baking production facilities in Jeungpyeong, Busan, and Suwon. KB Securities is reported to be the leading sale advisor. In this regard, LOTTE Wellfood disclosed that it is "reviewing various options regarding the operation of the baking business sector."
The first reason LOTTE Wellfood is considering the sale of its baking business is due to the 2022 merger of Lotte Confectionery and Lotte Food. Originally, LOTTE Wellfood had indicated it would streamline operations, such as selling facilities, should overlapping production issues arise from the merger. A notable example was the Jeungpyeong factory.
The anticipation of some excitement around the sale is also why LOTTE Wellfood is starting with the sale of its baking business. If sold quickly at a good price, LOTTE Wellfood could invest in future business opportunities in a timely manner. LOTTE Wellfood plans to invest 222 billion won to expand its ice cream factory in Cheonan. Additionally, LOTTE Wellfood aims to grow its Pepero snack into a 1 trillion won mega brand.
Recently, the popularity of the baking process is rising. As the distribution structure for bread, which was previously limited to bakeries, diversifies, the contract manufacturing market for bread has also expanded. In the past, bread was only sold at bakeries, but recently, low-cost coffee franchises such as Mega MGC Coffee, Compose Coffee, and Baek Dabang have also begun selling simple cookies or breads to enjoy with coffee, and this trend is growing.
Convenience stores are also a stage for the "bread showdown." GS25's sales growth rate for bakery products was 16.7% in 2021 compared to the previous year, which increased to 59.3% in 2022. In 2023, the sales proportion of bakery products was 34%.
CU's sales proportion for bakery products increased from 11.7% in 2021 to 51.1% in 2022. In 2023, the sales proportion for bread was 28.3%.
A relationship in the distribution industry noted, "When convenience stores plan products and place orders, they need manufacturers. Recently, the frozen bakery market has also been established, leading to high demand for baking facilities."
Evaluations in the capital markets suggest that the sale will not take long. Although it may be a non-core asset for LOTTE Wellfood, it is believed that there is enough demand from other baking companies wishing to expand facilities. LOTTE Wellfood is currently selling its baking products under the Kirin brand. According to the Korea Agro-Fisheries & Food Trade Corporation (aT) food industry statistics, LOTTE Wellfood's market share based on retail sales in the first half of last year was 9.8%.
A capital market relation stated, "The Belgian premium chocolate brand Godiva expanded its products into ice cream and opened a bakery store in Seoul last year, becoming the second one in the world." They added, "This is judged to indicate business growth potential, and similar movements are inevitable across various distribution channels, creating sufficient market conditions for facility expansion."