Sunday, Aug 19, 2018
Conglomerate | Asia-Pacific | Japan

Lotte Group

Constantly adapting to conquer all tastes

2 years ago

Mr. Takayuki Tsukuda, President of Lotte
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Mr. Takayuki Tsukuda

President of Lotte

As the global taste for new products grows and changes constantly, the Lotte Group successfully adapts to these changes offering new products that conquer everyone’s heart and mouth. President Takayuki Tsukuda explains the challenges to penetrate new markets, its unique corporate philosophy and future synergies in the US.

Since its establishment in 1948, the Lotte Group has developed a well-earned reputation as one of the leading manufacturers of consistently high-quality confectionary products, with numerous popular brands loved by many across the globe. The group can now be genuinely recognised as a total lifestyle company with many businesses in a diverse range of areas. What in your view makes Lotte different to other manufacturers of confectionery, foodstuffs and health products in fact as a total lifestyle company?

First, I would like to give you a little introduction about Lotte. We were established in Japan in 1948 and, talking about the scale of our business, in Korea grosses 6 trillion yen and in Japan 400 billion yen. In Japan, where our business results last year achieved operating profit of the highest standard in the past 10 years, we are a confectionary company. In Korea, not only do we sell confectionary items but we also operate hotels, shopping and petrochemical businesses as well. We have a very wide area of business operations.

When we started in Japan, companies with over 100 years of history, like Meiji, were already on the market whereas we only have 60. Today, we have the number one position of the confectionary business in Japan. Because we have such a different starting point, we always wondered how we could catch up to the other companies in the industry. This is the biggest question the founder had. Part of the company philosophy was to keep it consumer orientated, as well as to aim for differentiation and uniqueness. Raising these three philosophies as our core, we became the top manufacturer. Even back when there were many competitors in the field, their products were essentially targeting children. In order to differentiate ourselves from the other companies, we directed products to adults, such as mint gum. Although mint is the mainstream flavor of gum, we altered the taste to be more suiting to the Japanese taste. In 1997, in order to differentiate, we launched a dental chewing gum, Xylitol. You may have realised already, but these are not fatty products of sugars, but it still achieves a sweet taste. It enhances remineralization of initial caries. Other companies will say they make products like Xylitol, but in terms of the market share, we are the number one in the world. We do not stand out only through our orthodox service of these products, but also oral healthcare. This is our direction in pursuit of differentiation.

As for our chocolate products, it’s been already 52 years since we launched them, whereas companies like Meiji already have 100 years of history. We realised we cannot go down the same path and offer products similar to that which Meiji produced, such as Hershey style chocolates, so we came up with European style products. We brought over techniques from Switzerland to create a smooth texture in our products, which goes in line with the preferences of the Japanese population. Of course companies like Meiji are number one in chocolates, but if you look at every single brand of chocolate, Ghana is the top player. It’s not easy from a technical perspective to achieve products like Ghana’s, but we accept the challenge. In 1983, we came out with the Chocolate Pie (Choco Pie), which is a baked snack that can be kept for 6 months. It has a highly technical process. We tried to catch up with this challenge as well as technical development. 

As I mentioned earlier on, the founders stated that as a business you need to be consumer orientated, as well as unique and a provider of high quality products. This corporate culture is still who we are today. On the Japanese market, which suffers from low birth rate and an aging population, self-medication functioning products are in demand very much today. We believe that we need to be attentive to the sharp changes in the market as well as to the structural ones. There are things that have to be manufactured in the short term. There also has to be products that will last for the long term, like 10 years, in order to adjust to structural changes. We have chocolate that contains plant based lactic acid bacteria. This lactic acid bacteria is very familiar among the community. On the other hand, animal-based lactic acid bacteria is very fragile. Products like yogurt are usually made from animal-based lactic acid bacteria, but we decided to go with plant-based, as it is very resilient against environmental changes. Placing this type of lactic acid bacteria in our products seems weird, but it really does make sense. The lactic acid bacteria chocolate product was launched in October 2015. Fortunately, it has a very good reputation and has sold over 10 million boxes already! 

This skill that we have is currently going under international patent. In Japanese companies, it’s important to look at things like ROI and ROE over a short-term perspective.

What in your view have been the core drivers behind such an impressive growth and expansion over the company’s history?

I believe there are two things that I could address that would answer this question. The first is being market orientated. Our focus is South East Asia, which is our main overseas market. We already have operations in nine different countries, but if you take a closer look at them, the preferences vary among the countries. The Japanese people have a very delicate demand towards food products, and we have already been addressing these needs in the country, so I believe that we will be able to pick up the need of the overseas market as well, and develop a product that will be able to meet this kind of demand. In Vietnam, one of the South East Asian countries where we operate, our competitor is a great player and, in order to expand in this market, we had to do our homework; we did plenty of in-depth market research. We found out that our mint flavored chewing gum products are well-received among the female population, but are seen as not being enough for the male population. Last year in spring, we released a strong mint flavor chewing gum, and it has been more readily accepted by the male population.

I believe this example highlights how we are able to meet the domestic demands and use this skill to meet foreign demands as well.

What have been some of the principal challenges you have faced whilst you grow in an ever more globalised society?

As you know already, I used to be a banker. I do not have much knowledge of the technical skills per say, but I believe that I have skills in which to point the direction that the company should head in, and looking into what sort of technical development should be happening. If you look at the past 60 years and combine the work that we have done in both Japan and Korea, well, then our market size is little over 8 trillion yen. We had a powerful founder who led the way, but then on we had to figure out the best way to manage our structure. This is why I think it is important for each employee to be accountable for how to think, how to act and reflect upon his or her actions. I felt that it is important to strengthen these abilities of every employee when I am in the position to. Not only the technical aspects, but also I believe it’s important that each person has a management role in the company. There were plenty of employees that did not know how to read or balance income statements, we decided to revert this situation so everyone can appreciate what it means working at Lotte.

With globalisation being a top issue, we developed training programs where we can send employees overseas, not for the purpose of learning technical abilities, but so they can capture and feel what the outside market prefers. Upon learning the basics like balance sheets, employees are sent overseas for six months to countries like Thailand, Vietnam, Indonesia or European countries like Poland, and while they are sent there to work, I recommend that they take in the culture and food life.

What potential do you believe the US holds for Lotte as the group continues to grow?

We have a very close relationship with Hershey’s in the United States; cooperating together we want to create synergy between both companies. In order to operate shoulder to shoulder with established friends like them, as well as offer unique products in each other's countries, we find that it is necessary to have this type of relationship.

I believe Hershey’s is very powerful in their marketing abilities. A few years ago, ten of us went there as a part of our training to study Hershey's marketing approach. On top of that, Lotte has unique products to offer so we are looking into ways thorough which we can produce further synergies with this relationship.

How are you looking at potential partnerships or M&A to aid you in breaking into new frontiers?

Due to Lotte’s ownership of sports teams, every time there is a game our brand name shows up on a screen. That helps our audience come across our name, especially in stadiums. Similarly to the United States, who are better at pushing forward their brand names, we are able to reach our audience in this shape and form. We have the Lotte uniform, very popular among children, which have been selling in the multiple thousands of units and other products as well like the ones with the Ghana brand on it; we are going out and selling these uniforms.

What is the strategy behind raising further awareness about your products especially in the US market?

I believe that the cooperation with Hershey’s is going to be very important. We already have a small location is Los Angeles, which has both Japanese and Korean staff; they will investigate the American market further and plan ahead on how to spread the brand in the American market which is very health conscious, particularly in Los Angeles. I believe our lactic acid bacteria chocolate products will be able to sell well upon modifying the product a little bit. In Poland, we acquired a subsidiary six years ago, which will be an anchor for our expansion in the European market. We have already gone out to try to launch this product.

What would be the final and direct message that you would like to address to the readers of USA Today?

The same can be said about the Japanese market as the American market or the world market, but it is rapidly changing. We constantly ask “how do you respond to these changes?” I would like to provide a quote from Darwin’s evolutionary theory: It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change. I think the same can be said about businesses. As I mentioned earlier on, the Lotte corporate policy is about responding to changes, but the philosophy must be something that is not rigid. The core must be stable, but the question of how to respond to these changes is something that must be shared with the corporation and the employees. As a leader, I believe that it is important to maintain this base of the corporate philosophy, create the changes that need to be executed to direct the company in the right direction.




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