Choco-Pie makers on alert as Russian isolation deepens

Orion and Lotte Confectionery -- the makers of Choco Pie, a popular snack in Russia -- are closely monitoring the economic sanctions imposed by the international community against Moscow for its invasion of Ukraine, as they could cause instability in the supply of raw materials, a drop in the ruble’s value and a local economic recession.

Orion, known for its popular signature snack Choco Pie, has expanded the production capacity of its local plants in Russia. Since 2019, the company has seen double-digit growth each year on the back of strong sales of Choco Pie. 

Orion, whose Russian sales surged 31.4 percent to 117 billion won ($94.9 million) last year, said there has been no immediate impact from the recent sanctions against Russia, but remained cautious of any further sanctions and their long-term impact.

Sales from Russia took up about 10 percent of Orion’s worldwide total last year, according to the company.

“We are looking for alternative financial institutions in preparation for a possible extension of the SWIFT sanctions,” an Orion official said, referring to the international payments system.

“When it comes to raw material supply, the current stockpile will be enough to hold up for about two months. We are seeking to diversify suppliers in case of supply disruptions.”

Regarding the company’s ongoing construction of its third factory in Russia, the official said the process is on pace to be completed in the first half of this year, but the schedule could change depending on the local situation.

Russia’s attack on Ukraine has clouded the outlook for Lotte Confectionery, which had just decided in January to invest 34 billion won to beef up the local production of its own chocolate cake snack Choco Pie in efforts to chase Orion, the market leader.

Lotte Confectionery recorded approximately 60 billion won from sales of Choco Pie in Russia last year, according to the snack maker.

A Lotte Confectionery official said the atmosphere there has been difficult, but the company is keeping a close eye on the situation and preparing countermeasures to secure finances and raw materials in case of a prolonged crisis. According to the official, Lotte Confectionery has secured enough raw materials to last for the next few months.

Other Korean companies in the food and beverage business -- Lotte Chilsung Beverage and Paldo -- are also closely monitoring the situation in Russia, the exchange rate of the ruble, and the expected impact of the crisis.

Both companies said there has not been an immediate impact from the financial restraints imposed against Moscow.

The Korea Investors Service, an affiliate of Moody’s Investors Service, said in its report that Korean food and beverage companies will suffer little impact from the sanctions against Moscow, but pointed out there could be weakening demand due to decreased income and mounting social anxiety. The companies’ profitability could take a hit as the value of the ruble plunges, it added.

By Kan Hyeong-woo (hwkan@heraldcorp.com)