As more consumers try to reduce sugar intake due to the slow aging trend, the carbonated beverage market is experiencing a downturn. LOTTE Chilsung Beverage, which holds the Pepsi-Cola license, exceeded 4 trillion won in sales last year, but when focusing solely on its beverage business, both sales and operating profit fell. LG H&H, which has Coca-Cola as a subsidiary, also saw a decline in its beverage sector performance.
◇LOTTE Chilsung and LG H&H, sharp decline in beverage sector operating profit
According to related industry sources on the 21st, LOTTE Chilsung Beverage recorded 4.0245 trillion won in sales last year. It was the first time for a comprehensive beverage company to surpass annual sales of 4 trillion won. This achievement was realized just a year after breaking the 3 trillion won mark in 2023. However, operating profit fell by 12.2% to 184.9 billion won.
The issue lies with LOTTE Chilsung Beverage's core business, the beverage sector. Last year, beverage sector sales were 1.9097 trillion won, down 2.2% from the previous year. Operating profit also plummeted by 35.7% to 104.2 billion won during the same period. The significant impact was due to rising raw material costs and poor sales of carbonated drinks such as Chilsung Cider. The decrease in operating profit amounted to 57.9 billion won, which is 1.7 times the operating profit of 34.7 billion won from the alcohol sector last year. This amount is grossly insufficient to fill the gap left by the decreased operating profit in the beverage business.
LG H&H's sales last year were 6.8119 trillion won, a 0.1% increase compared to the previous year. Operating profit stood at 459 billion won, a decrease of 5.7% during the same period. While cosmetic and household product performances were strong, the poor performance of the beverage sector dragged down LG H&H's overall results.
The beverage sector's sales last year were 1.8244 trillion won, a 1% increase compared to the previous year. Operating profit was 168.1 billion won, down 21.9%. Among Coca-Cola beverage sales, the most significant products were Coca-Cola, Monster Energy, and Powerade. The share of carbonated beverages in the beverage business was 72%, while non-carbonated beverages made up 28%. As profitability worsened, the company implemented voluntary retirement for employees in sales and logistics born before 1971 at the end of last year. This was the first time in 17 years since LG H&H acquired the company in 2007.
The industry reports that the consumption of carbonated beverages has decreased due to the slow aging trend. Slow aging refers to lifestyle habits associated with aging healthily and slowly, with reduced sugar intake being the core aspect. Consequently, carbonated beverages are increasingly being sold as 'zero' variants that do not contain sugar. However, research results are emerging that artificial sweeteners used instead of sugar in zero beverages, such as 'aspartame,' are also harmful to health.
◇LOTTE Chilsung focuses on overseas business, Coca-Cola targets MZ generation
LOTTE Chilsung Beverage and LG H&H are both committed to 'saving cola.' LOTTE Chilsung is focusing on its overseas business. In particular, the company is concentrating on the bottling business, where it receives beverage concentrates from manufacturers like Pepsi, adds water and carbon dioxide, and then distributes and sells the finished goods in the market. The Pepsi bottling business, which has so far operated only in Asian countries like the Philippines, plans to expand into developed countries such as the U.S. and Europe this year. LOTTE Chilsung was also selected as 'Bottler of the Year' by PepsiCo last year.
LOTTE Chilsung Beverage is also sailing smoothly in Myanmar. Last year, its Myanmar subsidiary completed expanding the PET line in the fourth quarter and plans to focus on expanding production capacity this year. In fact, overseas business has become a profit driver for LOTTE Chilsung Beverage. It recorded 147.4 billion won in sales in Pakistan and 68.8 billion won in Myanmar. Operating profits were 14.9 billion won and 18.6 billion won, respectively. In the Philippines, sales reached 1.0294 trillion won, with an operating profit of 7.4 billion won.
Kim Tae-hyun, a researcher at IBK Securities, noted, 'LOTTE Chilsung Beverage saw a decline in sales across most items, including carbonated drinks, coffee, bottled water, and juices, last year, except for energy and sports drinks. However, overseas subsidiaries are experiencing a continuous improvement in performance. The Philippine subsidiary is undergoing a consolidation of production facilities and logistics, which is expected to lead to continued profitability improvements.'
LG H&H appointed Lee Hee-gon, who oversees beverage operations, as the new CEO of Coca-Cola last year, replacing the leadership after just one year. This change is interpreted as being influenced by Coca-Cola's poor performance. However, LG H&H stated that it was a natural transition following the predecessor's promotion and warned against excessive interpretation.
LG H&H is hiring top stars as advertising models one after another to target the MZ generation, the primary consumer group for carbonated beverages. Following NewJeans as the model for Sprite and actor Cha Eun-woo, it has recently selected Karina from the girl group aespa. Starting next month, a global advertising video featuring Karina as the model for Sprite will be released. Edward Lee, a chef, was selected as the advertising model for Coca-Cola. The company said, 'We thought that Chef Edward Lee's culinary philosophy, which prioritizes harmony, resembles the uniqueness of Coca-Cola.'