How a scrappy chewing gum confectionery became a retail empire

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How a scrappy chewing gum confectionery became a retail empire

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1. Lotte Group founder Shin Kyuk-ho visits a factory run by Lotte Confectionery in this undated photograph. 2. Shin attends the opening ceremony for Hotel Lotte in March 1979. 3. Shin attends the opening ceremony for the Lotte World Adventure amusement park in July 1989. 4. Lotte Mart’s first location in Vietnam opened in December 2008. 5. Lotte Liquor completes its factory in Chungju, North Chungcheong, in April 2014. 6. A ceremony at the Lotte World Tower in southern Seoul to celebrate completion of the building’s frame in December 2015. [LOTTE GROUP]

Lotte Group today is a vast business empire that includes supermarkets, hotels, theaters and even a chemical manufacturing arm.

It might surprise some that Korea’s fifth-biggest conglomerate started off selling chewing gum and chocolate.

Shin Kyuk-ho founded Lotte as a scrappy confectionery in 1948 with 10 employees on his payroll. The company was named after the romantic interest in Goethe’s 18th-century novel “The Sorrows of Young Werther.”

The business started by selling gum in Japan, where it was gaining popularity from the influence of American soldiers stationed there after World War II.

Shin first moved to Japan from Korea during the middle of the war in 1942. The 20-year-old aspired to learn more about the world and studied in Japan while delivering newspapers and milk to make ends meet.

Two years later, with a gift of 50,000 yen, worth about $2,000 today, from a generous Japanese businessman who thought highly of him, Shin made his first attempt at starting a business with a cutting oil factory in Japan. It ended when the facility was bombed by American warplanes.

His next venture was selling soap. Shin found an abandoned arsenal and started producing soap, a business that ended up being quite successful as wartime demand for cleaning products was high.

Encouraged by his well-sailing soap business, Shin decided to get into gum after the war. His business brought him a fortune, and he was able to incorporate his operation into Lotte in 1948 with a starting capital of 1 million yen.

In 1961, Shin expanded his confectionery lineup to chocolate, followed by sugar candies, biscuits and ice cream.

Jumping into chocolate, in particular, was a challenge for Shin as manufacturing chocolate bars required delicate skill that had already been mastered by Western chocolate makers, so he imported skilled workers and facilities from Europe.

In 1967, nearly two decades after Shin launched Lotte in Japan, the 45-year-old businessman pledged to invest in Korea, his home country, and established what is known today as Lotte Confectionery.

“I have been away from my home country for a long time, so I expect there will be a lot of gaps,” Shin said in his inauguration speech for Lotte Confectionery in Korea. “But I will try my best. … My corporate philosophy is to serve the country and society through the company by managing quality and relationships with the labor union well.”

By the 1970s, Shin had established Lotte Chilsung Beverage and Lotte Samkang, known today as Lotte Food, and made them the country’s top food and beverage producers, but his ambition didn’t stop there. His next target was tourism.

Shin made an aggressive foray into hotels and shopping, acquiring Bando Hotel, at the time the biggest hotel in Korea, in 1973 and turned it into the Lotte Hotel, where it still sits in Sogong-dong, central Seoul, today. It took six years and $150 million to replace the Bando with the 38-story, 1,000-room hotel.

In Korea, Shin is considered a pioneer of the country’s tourism industry. In the ’70s, the nation was still focused on manufacturing. Private investment in tourism was extremely low. “Korea’s industrial foundation was still weak, and there weren’t enough tour-related assets in Korea to attract foreign visitors,” the company said.

The hotel in Sogong-dong outlasted people’s expectations, and its success led to another Lotte Hotel location in Busan in 1984, followed by a second Seoul location in the southern neighborhood of Jamsil in 1988.

The pinnacle of Shin’s tourism push was the opening of a duty-free store inside the Jamsil hotel as well as a theme park called Lotte World Adventure just next to it. This was in 1989.

In 2010, the company advanced into Moscow, a first for a Korean hotel.

While all this was happening, Lotte Shopping, which encompasses major retail business including department stores and supermarkets, was also experiencing a rise. The subsidiary was established in 1976 and opened Lotte’s first department store in Sogong-dong in 1979. It instantly became the country’s top department store and continues to maintain that position today.

But in Korea, a conglomerate can only get so far by just focusing on retail and tourism. In fact, Lotte is the only chaebol in the country’s top five that had roots in retail. The four companies that outpace it - Samsung Electronics, Hyundai Motor Group, SK Group and LG Electronics - all had roots in manufacturing.

In 1979, Lotte branched out to chemicals by acquiring Honam Petrochemical, which had just become a private company after years of state ownership. That year, Honam Petrochemical built three manufacturing lines in Yeocheon, South Jeolla, and started producing high-density polyethylene, polypropylene, ethylene oxide and ethylene glycol - all used in making plastic.

In 2012, the company merged with KP Chemical and changed its name to Lotte Chemical. The chemical affiliate is one of the main businesses of Lotte Group.

Half a century after its founding as a retailer of minty chewing gum, Lotte has become a retail giant generating 100 trillion won ($90 billion) in annual revenue with 94 affiliates under its roof. The conglomerate says it hopes to continue its streak by focusing on solidifying trust with Korean consumers and expanding its overseas business.


BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]

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