Lotte Chilsung acquires Pepsi Philippines, eyes expansion in the region

Employees of Pepsi Cola Products Philippines (Pcppi) [LOTTE CHILSUNG BEVERAGE]

Lotte Chilsung Beverage has fully acquired the management control of Pepsi Cola Products Philippines (Pcppi), the Philippines' second-largest beverage maker, with an annual sales figure of nearly one trillion won ($736.6 million).

The acquisition process was officially closed on Sept. 29, according to the liquor and beverage unit of Korea's Lotte Corporate on Wednesday, after it acquired a total of 73.6 percent of the Philippine bottler of U.S. food, snack and beverage multinational PepsiCo.

The approval follows Lotte Chilsung Beverage's initial acquisition of a 34.4 percent stake in Pcppi back in 2010. Over the years, the company deepened its involvement, entering into a strategic partnership with the global food and beverage giant, PepsiCo. The partnership led to a substantial increase in its stake, reaching 73.6 percent, ultimately resulting in Lotte Chilsung Beverage gaining full control after 13 years.

"We pursued a strategy to enter the local market securely by acquiring a stake in Pcppi, helping us reduce the risk associated with direct investment while ensuring a stable presence in the local market," the company explained.

The deal sees Lotte Chilsung Beverage turn Pcppi into its subsidiary, with its performance to be included in consolidated financial statements beginning in the fourth quarter of this year.

Pcppi posted 908.7 billion won in revenue last year, a 24.7 percent increase, with an expected one trillion won revenue for this year. The Korean firm anticipates that the full integration of Pcppi's performance into consolidated financial statements will propel its sales to exceed four trillion won in the coming year — 22 years after achieving the one trillion won mark.

Lotte Chilsung Beverage's strategic choice to focus on the Philippines for expanding its beverage business in the early 2000s is rooted in the country's substantial population of approximately 100 million, a youthful demographic with a strong inclination toward carbonated beverages. The company also cited the region's favorable tropical climate for beverage production and expansion.

Currently, Pcppi operates a network comprising 12 factories, 14 sales offices, and 69 sales branches. The company is responsible for the production and distribution of PepsiCo's brands such as Pepsi Cola, Mountain Dew and Gatorade. Lotte Chilsung Beverage envisions Pcppi as a pivotal stepping stone for their expansion into the Southeast Asian market, where it plans to locally manufacture and distribute its proprietary brands, including Milkis, Chilsung Cider, and introduce its soju brand Chum-Churum.

"With the acquisition, the percentage of our overseas sales next year are expected to boost to over 30 percent of our total revenue, including export performance," a Lotte Chilsung Beverage official said. "We will enhance Pcppi's operating profit margin to 8.5 percent by 2025 with investments such as in process optimization through enhancing the IT infrastructure, automation equipment, and the streamlining of our logistics network."

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]