Sector Trend Analysis – Alcoholic beverages in South Korea

Alcoholic beverage megatrends

Drinking is considered an important part of professional life in South Korea and is often encouraged at social and business occasions. In a country where 10-hour work days are the norm, it is common to have drinks with colleagues (known as hoesik) and to relieve stress after work. According to a 2014 study by Euromonitor, "Of 44 countries analyzed by Euromonitor, South Koreans drink 13.7 shots of liquor per week on average, which is the most in the world. The Russians, the second biggest in Euromonitor's sample, down 6.3 shots per week, while Americans consume only 3.3." In terms of retail sales, beer is the most popular alcoholic beverage in South Korea, followed by spirits and wine.

Health concerns

Increased health concerns, especially among South Korean millennials, have significant impacts on the spirits sectors and are increasing the demand for products with a lower alcohol content. This long-term trend was promoted by companies and the South Korean government with the 119 campaign: "one drink, one type of consistent alcohol, finished by 9pm." Health concerns among the general public regarding alcoholic beverages are generating strong demand for products with less alcohol. Although drinking is decreasing among the elderly population for health reasons, among the younger generations, the drinking culture is slowly changing from heavy to more leisurely drinking. This, in turn, has led to the increasing popularity of luxury brands and lower-content alcoholic drinks.

Female consumers

South Korean women are gradually becoming a bigger proportion of South Korea's corporate world and senior executives. The female employment rate increased from 46.8% in 1998 to 57.9% in 2018. They are the driving force behind the increase in demand for alcoholic products with lower ABV (low alcohol by volume) content and an increase in the range of flavours offered among beers, spirits and wines.

Solo drinking

There is also a growing culture of drinking solo (called "Honsul "- 혼술^{Footnote 2}) that is leading those in their 20s and 30s who choose to drink to do so at home instead of going out. The proportion of one-person households is getting larger in South Korea and they have become a significant part of the market. The convenience store industry is the brightest spot in the growing solo economy. The beer and liquor industry has begun to adapt to this customer base (millennials) by remarketing flagship products in smaller packaging sizes. For instance, Oriental Brewery released mini-sized Hoegaarden Rosée bottles in an effort to diversify its small-portion lineup and to attract female customers.

South Korean beer market

South Koreans are the 11^th largest consumers of beer in the world (Euromonitor International, 2018). Between 2013 and 2017, the retail value of beer sales in South Korea increased at a compound annual growth rate (CAGR) of 5.3%, to reach US$15.1 billion. Over the forecast period, retail beer sales are expected to see a CAGR of 4.8%, to reach US$19.2 billion in 2022.

Craft beer

Craft beer in South Korea has seen explosive growth since 2014. One of the main reasons for this growth is that for decades, the supply was homogeneous and dominated mainly by a duopoly: HiteJinro and Oriental Brewery (OB). Over the years, these large-scale domestic breweries mainly brewed a limited assortment of low-priced beer, targeting mass distribution (dry lagers). Young consumers have become fairly bored with the lack of choices and are therefore increasingly likely to try craft and foreign beers. Consumers are slowly pressuring the local breweries to launch different ale beers as well as products with more malt and hops or expand production of their premium brand lager. Craft beers from local microbreweries are mostly ales with unique flavours. Local beer importers are trying to cope with this fierce competition by focusing on priority products in their portfolios. Opportunities lie in products with high brand recognition to offset weak competitiveness against domestic ones.

South Korean millennials are increasingly looking for greater diversity in their beer products, such as ales, fruit beers and dark beers. Foreign beers are positively impacted by this trend, as foreign beers (pale ale, wheat beer and dark ale) are perceived as premium products. This offers opportunities for Canadian brewers as South Korean millennials want and can afford those premium expensive beers. Foreign beers are currently popular in South Korea and the number of specialized beer shops and cafés are increasing in major cities such as Seoul and Busan. Beer imports have increased as a result of consumers' appetite for different beer varieties and locally produced beer.

Since craft beers are often expensive, craft beer brands focus on consumers with higher disposable incomes. Bars and tap houses selling domestic craft beer have started gaining in popularity over the last few years, fuelling the creation of more breweries across the country. In 2017, the craft beer industry accounted for less than 1.5% of the overall beer market sales in South Korea, with about 81 craft breweries in operation. However, the trend has extended outside of the Seoul districts of Itaewon, Gangnam and Hongdae and across the country. These starters will also be looking for raw materials, which offers opportunities for Canadian producers.

The domestic premium lager has significantly declined from 2013 to 2017, with a CAGR of −10.1%. Over the forecast period (2018-2022), growth will be stagnating within the domestic premium lager category as South Korean consumers are choosing imported premium beer instead.

Imported premium beers saw solid growth in recent years (CAGR of 34.3% from 2013 to 2017) due to the increased demand for value consumption; increased demand for products of diversified taste and quality and increased alcoholic beverage consumption among the female population.

Total volume sales of dark beer rose by an impressive 56% in 2017, outpacing the other categories.

Off-trade and on-trade review^{Footnote 3}

In 2017, domestically produced mid-priced lager experienced modest growth as it continued to face persistent competition from foreign importers. Aggressive promotional discounts for imported beer and increasing trials of craft beers by consumers (both on- and off-trade) are expected to hamper the performance of domestic mid-priced lager brands. To offset this decline, domestic beer companies are increasingly expanding their portfolios of imported beer brands to maintain their overall market shares.

Companies

South Korea's major breweries^{Footnote 4} faced the challenge of losing revenue in the review period, caused by the weak forecast performance (2018-2022) of their domestic premium lager. To alleviate the situation, starting in 2014, they began incorporating imports and distributing a growing number of foreign beers that are very popular with young South Koreans.

For instance, Anheuser-Busch has expanded its range of products offered in South Korea and in 2018 managed over 18 imported beer brands, such as Budweiser, Hoegaarden, Corona, Beck's, Stella Artois, Leffe and Löwenbräu. One of the tactics used to break into the South Korean beer market was to target female consumers with selected fruit-flavoured products such as Hoegaarden (Rosée) and Kronenbourg (1664 Blanc), which both had some success in South Korea.

Faced with growing competition from foreign brands, HiteJinro has also established import distribution partnerships with some of the leading international beer companies to cope with increased market demand for imported beer.

Distribution channels

One reason for the rapid increase in the popularity of imported beer is the promotions at specialized shops and convenience stores that offer bundles of beer from around the world and at much better prices. Consumers are increasingly buying imported beers from convenience stores in major cities. Many convenience stores offer imported beers at a discounted price and sold in bundles, such as four cans for 10,000 KRW (US$8.90). Price promotions on imported beer in off-trade outlets are expected to continue during the forecast period (2018-2022).

Foreign beer in South Korea

South Korea's beer imports have continued to post robust growth in recent years, especially for imported premium lager in response to increased consumer demand for products of diversified taste and higher quality. The international beer export market in South Korea is booming (CAGR of 29.0% from 2014 to 2018) and, among others, North American beers are becoming increasingly popular in South Korea. Emerging demand for premium quality beer offers an excellent export opportunity for Canadian beer; however, exporters must be aware of and be prepared to contend with both domestic and international competitors.

• For many South Koreans, Europe is perceived as the leading source of quality beer around the world. As a result, many European countries, including Germany, the Netherlands, Ireland and Belgium, have established strong market share in Korea's imported beer market in recent years.
• Japan remains the leading supplier of imported beer in South Korea, shipping $78.3 million in 2018, up 9.6% from 2017. Many of the leading Japanese breweries have developed direct business partnerships with hypermarket grocery stores and franchise beer pub restaurants for efficient penetration in the South Korean market.
• China has rapidly emerged as the second largest exporter of beer to South Korea, partly due to the number of Chinese tourists visiting the peninsula every year (about 8 million as of 2016), as well as Chinese people working under a work visa (about 1 million as of 2016).

Product launch analysis for beer

In the last five years, 416 new beers were launched in South Korea. Out of these, 251 were new beers on the shelves of South Korean stores. Featured products are increasingly being relaunched with new packaging and breweries are expanding the range of products. Demographic factors continue to impact on package size and design increasingly, while new lifestyle trends generate changes in product preferences. Millennials make the most of their tight budgets by maximizing cost-effectiveness, but they never compromise on taste.

Description of above image

Launch type	2014	2015	2016	2017	2018	Total
New product	72	49	54	42	34	251
New packaging	11	18	32	16	21	98
New variety / range extension	8	16	10	10	16	60
Relaunch	0	2	2	0	2	6
New formulation	0	0	1	0	0	1
Total	91	85	99	68	73	416

Source: Mintel, 2018

Description of above image

Unit pack size (ml)	Bottle	Can
500 ml	147	10
330 ml	21	87
355 ml	31	57
1000 ml	1	7
473 ml	7	1
Other	12	12
Total	229	187

Source: Mintel, 2018

Description of above image

Price in US$ (group)	Bottle	Can
1.00 - 2.22	67	23
2.23 - 4.35	107	51
4.36 - 6.48	22	61
6.49 - 8.61	21	30
8.62 - 10.74	7	11
10.75+	5	11
Total	229	187

Source: Mintel, 2018

Description of above image

Price in US$ (Group)	500 ml	330 ml	355 ml	1000 ml	473 ml	Other format
1.00 - 2.22	51	20	3	5	2	3
2.23 - 4.35	88	40	16	2	4	5
4.36 - 6.48	7	24	34	0	1	10
6.49 - 8.61	5	13	27	0	0	3
8.62 - 10.74	3	6	5	0	1	1
10.75+	3	5	3	1	0	2

Source: Mintel, 2018

Description of above image

• Premium (86)
• Environmentally friendly package (41)
• Limited edition (26)
• Active on social networks (21)
• Seasonal (19)
• No Additives/preservatives (13)
• Event merchandising* (12)
• Kosher (9)
• Organic (9)

Source: Mintel, 2018

*Event merchandising means products that have been launched in connection with or in collaboration with a specific event such as a sporting, musical, cultural or other event.

Examples of beer launches

Hefeweizen

Source: Mintel, 2018

Company	Privatbrauerei Eichbaum
Importer	Inter K
Brand	Stephans Bräu
Store type	Convenience store
Date published	December 2017
Launch type	New product
Price in local currency	KRW2500.00
Price in US dollars	2.30

Stephans Bräu Hefeweizen is now available. This German premium beer retails in a 500 ml can.

Lemon Flavoured Wheat Beer

Source: Mintel, 2018

Company	Oriental Brewery
Brand	Hoegaarden
Country	South Korea
Store name	CU
Store type	Convenience store
Date published	August 2017
Launch type	New variety / range extension
Price in local currency	KRW2700.00
Price in US dollars	2.07

Hoegaarden Lemon Flavoured Wheat Beer is brewed with coriander seed, orange peel and natural lemon juice. The limited edition, seasonal product is described as a combination of Belgian wheat beer and refreshing lemon perfect for the summer, is naturally cloudy and retails in a 500 ml pack.

Paradise Valley Grapefruit Ale

Source: Mintel, 2018

Company	The Whistler Brewing Co.
Importer	I&J Partner
Brand	Whistler Brewing Company
Country of manufacture	Canada
Store name	Shinsegae Department Store
Store type	Department store
Date published	May 2015
Launch type	New variety / range extension
Price in local currency	KRW5800.00
Price in US dollars	5.66

Whistler Brewing Company Paradise Valley Grapefruit Ale is a summer ale with a twist. The product is formulated as a malty blonde with added grapefruit zest, coriander and two kinds of hops. The result is said to be a smooth summer ale with a clean citrus finish and is recommended for afternoon patios. It contains no additives or preservatives, and retails in a 330 ml bottle.

Maredsous Strong Beer

Source: Mintel, 2018

Company	Duvel Moortgat
Importer	Muos
Brand	Maredsous
Country of manufacture	Belgium
Store type	Department store
Date published	October 2017
Launch type	New product
Price in local currency	KRW5500.00
Price in US dollars	4.88

Maredsous Strong Beer is now available. This high fermentation abbey beer is brewed in accordance with the Benedictine tradition of the community of Maredsous Abbey, and is refermented in the bottle. The product retails in a recyclable 330 ml bottle.

Gangnam Pale Ale

Source: Mintel, 2018

Company	Beersum
Importer	Beersum
Brand	Craftbros x Fuggles & Warlock
Country	South Korea
Store name	E-mart
Store type	Supermarket
Date published	November 2017
Launch type	New product
Price in local currency	KRW3980.00
Price in US dollars	3.57

Craftbros x Fuggles & Warlock Gangnam Pale Ale is said to have a balanced flavour with notes of tropical fruits such as orange, grapefruit and passionfruit, and caramel from roasted malt. The product retails in a 355 ml bottle.

Original Czech Dark Lager

Source: Mintel, 2018

Company	Tradicni Pivovar v Rakovniku
Importer	Dong-A International Trading
Brand	Cernovar
Store name	Home Plus
Store type	Supermarket
Date published	September 2017
Launch type	New variety/range extension
Price in local currency	KRW3590.00
Price in US dollars	3.17

Cernovar Original Czech Dark Lager is now available. The product retails in a 500 ml can.

South Korean spirits market

The country is the 10^th largest spirits market in the world, and South Koreans consumed approximately US$11.3 billion in retail value sales of spirits in 2018. Between 2013 and 2017, retail value sales of spirits in South Korea increased by a compound annual growth rate (CAGR) of 2.5%, to reach US$11.3 billion. Over the forecast period, the value of retail sales of spirits is expected to increase to US$19.2 billion in 2022.

When it comes to foreign liquor in South Korea, blended Scotch whisky is the main product consumed. It accounted for 22.2% of the South Korean spirits market in 2018. Per capita, South Korea is the world's top consumer of super-premium whisky (aged 17 years or over). However, blended malt Scotch consumption is rapidly declining with a forecast CAGR of −8.0% from 2018 to 2022. Blended malt will represent 13.3% of the spirits market share in 2022, which is a drop of 8.9%.

In contrast, there is a heavy and growing demand for single malts over blended malts. They will show the strongest sales growth within the whiskey category in the coming years with a CAGR of 9.0% from 2018 to 2022. However, they will still account for less than 5% of the spirits market in 2022.

Due to growing health concerns among young consumers (21-34 years old), sales of spirits (including whiskies) with an alcohol content below 40%, are set to intensify in terms of value and volume over the forecast period (2018-2022). The local market's key players have moved on to low-alcohol spirits by releasing new products to capture this growing consumer segment. ^{Footnote 8}

Off-trade and on-trade review

Compared to previous generations, young South Korean professionals (21-34 years old) are increasingly drinking foreign beers, soju and vodka in modern clubs and bars (on-trade channel). Demand for high-end hostess bars is decreasing, as is the demand for aged whisky, which was mainly consumed by the previous generations of businessmen in those places. However, as women are gradually becoming a bigger proportion of South Korea's corporate world and senior executives, the number of host bars in South Korea is growing. Healthier drinks with lower ABV (low alcohol by volume) content and more "mixable" spirits, such as gin, vodka and low-ABV whiskies, are sold in these venues.

In major cities like Seoul and Busan, a new wave of themed cocktail bars are opening while the consumption of white spirits is on the rise. The growing popularity of vodka and the cocktail culture in general in these cities offers international distillers growth opportunities for "mixable" products. Other hard liquors have also reported strong sales in bars and dance clubs targeting young drinkers recently.

A significant portion of annual sales of imported premium spirits (off-trade channel) takes place during a limited number of holiday seasons, including Lunar New Year's Day (celebrated on February 5 in 2019) and Korean Thanksgiving Day.

Companies

The health and wellness trend will increasingly play an important role in the marketability of low-alcohol spirits (marketed products with less than 40.0% alcohol) in South Korea, especially for whiskies. For instance, it is worth noting the success of Golden Blue, a local whiskey brand launched in 2009, initiated by a medium-sized local distiller in Busan.

Foreign spirits in South Korea

South Korea's imports of consumer-oriented distilled spirits (HS2208) totalled US$215.3 million in 2018, and have been declining steadily since 2014 with a CAGR of −3.9% (2014-2018). Whiskey was by far the most imported consumer-oriented distilled spirits into South Korea, accounting for 71.9% of total imports in value in 2018. The United Kingdom remained the dominant supplier of whiskey to South Korea, accounting for 92.9% of total whiskey imports in value. Canadian spirits exports to South Korea remain marginal, but Canadian spirits exporters are becoming increasingly noticed.

South Korean wine market

The country is the 25^th largest wine market in the world, and South Koreans consumed approximately US$2.4 billion in retail value sales of wine in 2018. Between 2013 and 2017, retail value sales of wine in South Korea declined slightly, posting a compound annual growth rate of −0.7%. Over the forecast period, the value of retail sales of wine is expected to increase to US$2.7 billion in 2022. The wine market in South Korea is still in the early stages of development, considering the amount of overall alcoholic beverage consumption in the market. However, it has strong long-term growth potential.

Despite a steady decline in wine sales in South Korea between 2013 and 2017 (CAGR of −0.7%), the market is promising for foreign products. The wine market declined from 2013 to 2017 mainly because consumption and sales of traditional Korean wines (Takju, Cheongju, etc.) have declined as older generations consume less or in smaller quantities. Their performance strongly affects the growth of the whole category. Traditional Korean alcoholic beverages are considered outdated by the younger generation in terms of taste and packaging.

One of the tactics used to break into the South Korean wine market was to target female consumers with aggressive promotional campaigns to promote the health benefits of red wine. Red wine is perceived by female consumers as a healthier option than other alcoholic products, as it is low in alcohol and calories. The South Korean red wine market is expected to continue to grow steadily in the coming years.

The sparkling and rosé wine market grew at double-digit rates between 2013 and 2017 and will experience strong growth over the forecast period. Sparkling wine and rosé are increasingly popular with millennials and especially with female consumers, who are the driving force behind this growth.

Off-trade and on-trade review

The retail price of imported wine in South Korea is quite high because of high distribution costs and tight government regulations. As a result, wine is still recognized as a premium product among the general public, and is consumed by a limited population. The high-end bars, restaurants and hotels are still too expensive for many South Koreans. They prefer to shop for wine at supermarkets (Lotte, Costco, E-mart, Homeplus). The same shoppers are expected to drive significant growth in the low- to medium-priced wine category in the next few years.

Hypermarkets are increasingly democratizing the availability of wine in South Korea. E-Mart,^{Footnote 9} in major cities, expanded its portfolio of wines to offer a bargain price to lower the barriers for price-conscious consumers. Wineries are trying to expand their distribution to convenience stores to target the growing number of single households, with an emphasis on half bottles and affordable prices.

Imports

The South Korean wine market has long been dominated by countries like France and Chile, but the environment is quickly changing as South Korean consumers welcome wines from more diverse origins. Other competitors (New Zealand, Germany and South Africa in particular) are likely to expand their presence down the road.

Both South Korean consumers and traders in general have limited knowledge of and experience with Canadian wine. Many of them have the perception that European producers, in particular France and Italy, offer better quality wine. Many South Korean importers expect to do business directly with foreign wineries. However, many Canadian wineries rely on export middlemen for emerging wine markets, including South Korea.

South Korea overview

South Korea is the world's 11^th largest economy (Canada is the 10^th largest) and Asia's 4^th largest after China, Japan and India. The South Korean economy is characterized by a highly educated, hard-working workforce; high-tech infrastructure; low public debt and unemployment; and a relatively stable market. South Korea has experienced steady economic growth and a strong labour market over the past few years, which will support income growth over the forecast period (2018-2022).

Doing business in South Korea

When contact with a South Korean importer is established, it is advisable to visit the importer in person. There is no substitute for face-to-face meetings because Korean traders highly value face-to-face contacts when developing business relationships with new foreign suppliers. Cold calls usually don't work with South Korean businesspeople. One of the best ways for new-to-market Canadian suppliers to develop contacts with a large number of Korean buyers/importers is through participation at a trade show. Seoul Food & Hotel (www.seoulfoodnhotel.co.kr) is the leading food trade show held annually in South Korea. Participating in these shows enhances initial contacts with importers, agents, wholesalers, distributors, retailers and others in the food and beverage industry.

Alcoholic beverage imports

By law, only licensed liquor importers are allowed to import alcoholic beverages, including beers, spirits and wines^{Footnote 10}. South Korean leading importers are often members of the South Korea Wine & Spirits Importers Association (KWSIA). Importers are allowed to sell directly to wholesalers, retailers (restaurants, bars, hotels and liquor stores) and directly to consumers (since 2012). However, bars and restaurants are not allowed to buy alcoholic beverages from off-trade liquor retailers (liquor shops and supermarkets).

Taxes

Both domestic and imported beers are taxed at 72%, but their tax base is different. Taxes on local beer are based on the sum of manufacturing, margins and sales costs. However, imported beer is taxed on its import price, or the product price plus transition fees declared by the importer, and customs tax. In other words, marketing and sales costs are not taxed on imported beer.

Local breweries complain to the government about unfair competition, with the tax gap as high as 20% according to estimates by the Korean Alcohol and Spirits Industry Association. The South Korean government is reviewing the current tax structure to tax all beers based on their quantity as part of next year's tax reform package.

Tariffs

Since January 1, 2019, most of Canada's exports have benefited from duty-free access into South Korea under the Canada-Korea Free Trade Agreement (CKFTA). South Korea will eliminate all tariffs on alcoholic beverages by 2024. Consult the Canada Tariff Finder to explore tariff information for the South Korean market under the CKFTA, and other foreign markets with which Canada has a free trade agreement.

Tariff preferences for key Canadian alcoholic beverage exports to South Korea:

• Beer - tariff of 30% will be eliminated by 2021;
• Rye whisky - tariff was eliminated in 2015;
• Canadian wine - tariff was eliminated in 2017;
• Canadian vodka - tariff of 20% will be eliminated by 2024 (tariff is reduced to 10% for 2019).

For more information

International Trade Commissioners can provide Canadian industry with on-the-ground expertise regarding market potential, current conditions and local business contacts, and are an excellent point of contact for export advice.

• Overview of the Trade Commissioner Service in South Korea
• Find a Trade Commissioner

For additional intelligence on this and other markets, the complete library of Global Analysis reports can be found on the International agri-food market intelligence page, arranged by region.

For additional information on Seoul Food and Hotel (SFH) 2019, please contact:

Ben Berry, Deputy Director
Trade Show Strategy and Delivery
Agriculture and Agri-Food Canada
ben.berry@canada.ca

Sector Trend Analysis – Alcoholic beverages in South Korea
Global Analysis Report

Prepared by: François Thériault, Market Analyst

© Her Majesty the Queen in Right of Canada, represented by the Minister of Agriculture and Agri-Food (2019).

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