LG to Buy Coca-Cola Korea Bottling Company
by Brendon Carr
Today it’s announced that LG Household & Health Care Ltd., which I knew as a detergent maker but which also makes cosmetics and beauty aids, is making a bid to be a diversified consumer-products company with a deal to purchase the Coca-Cola Korea Bottling Co., Ltd. unit from Australian bottler Coca-Cola Amatil. The deal price is being reported at various (highly various) values—JoongAng Ilbo says US$297 million, while DowJones’ MarketWatch says US$418-438 million. Guess that means due diligence is still underway, with more hard bargaining to come.
Amatil—itself one-third owned by the Coca-Cola Company—acquired the bottling operations from Coca-Cola Korea in 1998, after Coke had previously acquired and rolled up its several independent bottlers into a consolidated operation. Among them was Doosan’s Coca-Cola bottling company. This was, you may recall, the height of the Asian economic crisis (or, as we call it here in Korea, the “IMF Crisis") and at that time, Doosan was really circling the toilet bowl. Ten years on, not only is the company now back to financial health, but Doosan is making overseas acquisitions of its own.
But if you compare that 1997 price paid by Coke (according to the New York Times at the time, US$450 million just for one of three bottlers’ operations) to the 2007 price (between US$297 million and US$438 million), you can see that the Korean market—for Coke or for Amatil—hasn’t turned out as well as one would have hoped.
The “competitiveness” of the Korean soft-drink market is cited in the JoongAng Ilbo story as one of the factors. The paper says Lotte Chilsung (local bottler for Pepsi, by the way) has 44 percent of the market, CCKBC 14 percent, Haitai Beverage 14%—which leaves about another 25% in the hands of other soft-drink makers. That’s pretty surprising—the New York Times story from 1997 said Coke held almost 60% of the local market. There must be something wrong, like maybe the Times was describing the market for cola drinks as being the soft-drink market. Otherwise, that would be a really astonishing market reversal.
I think in this regard, we can see that having access to distribution through a Korean partner can be one of the keys to success in the Korean market. Distasteful as it is to concede that nationalism plays a part, for many foreign companies a major stumbling block is the fact that they are foreign. The problem may manifest in a variety of ways—consumer bias and official hostility (CCKBC has been the target of an unceasing “dirty tricks” campaign for at least seven years) and staff sandbagging it are always possible, but sometimes the foreign managers simply misread the market.
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You’d have to know something beyond market share, especially regarding profitability, before drawing any conclusions, grasshopper.
For example, Costco, I believe, made an intelligent choice on the trade-off of market share (and local “partner"/management/localization) and profitability and seem to be doing quite nicely—particularly compared to their ill-fated French comepetition, which seemed to have succumbed to the Korean version of “making a loss on individual widgets, but making it up on volume” by getting sucked into the Korean size game.
Also, I’m surprised you left out the saga of “815” cola. I got to visit their moribund factory in an industrial park on the outskirts of Daejon not too long ago. Reminded me of my high school years’ summer nights on the bottling line mixing the syrup for Coke and assorted other flavors of paint remover to raise the dosh for college. Otherwise, not much interest.
At times I think I’d prefer to drink 815 Cola over the 600ml Coca Cola bottles. Time after time I would open a 600ml bottle of Coke to find it was flat..ie not carbonated. You can’t go too wrong with the cans but they are so small.
A cokeaholic I may be, but the small cans bounce around in the cup holder in my car and the 600ml are too big, and most of the time flat.
They’ve pushed the price and made the bottle smaller (500ml) A nifty piece of marketing. The bottle now fits nicely into my cup holder and bottling has improved as surprise surprise they seem carbonated. It was a close call. I thought I might’ve had to start drinking 815!
You got that right on the flat sodas, Ryan. I stay far, far away from Cokes in any plastic bottles here in Korea because of that reason. Pepsi doesn’t seem to have the same problem, and neither does Chilsung Cider—but the Cokes are always horrid. Except from the can. From the can it’s glorious.