Beer in South Korea – Diverse Market Situation
With a population of 52 million people, South Korea is one of the smaller countries in Asia, in terms of both population and geography. But, despite its small size, it is one of the largest and most exciting beer markets in the Asian region. With a current per capita consumption of over 39 liters, the country’s beer industry has registered steady growth rates during the last decade as a whole.
Beer consumption in South Korea
The popularity of beer in South Korea can be understood from the following figures: In 2019, the country was the 18th largest consumer of beer globally, with a total consumption of 20.22 million hectoliters of beer. In the same year, beer accounted for 39.7 percent of the total alcoholic beverage sales value in South Korea.
Stiff competition from Soju
After beer, the second most consumed alcoholic beverage in South Korea is soju – a clear and colorless distilled beverage traditionally made from rice, wheat or barley.
Soju is easily identified by its signature bright-green glass bottle. You can find these green bottles for about KRW 1,000 (USD 0.94) in supermarkets and around KRW 1,600 in convenience stores.
This is one reason why soju is very popular in South Korea, thanks to its affordability.
In the 1990s, when there was a rice shortage in the country, the Korean government implemented a ban on using rice to make soju. Even though the ban was lifted eventually, present-day manufacturers converted to using starches such as potatoes, sweet potatoes, and tapiocas.
This has also resulted in lower alcohol content in soju.
Negative impacts on beer consumption in recent years
The beer industry has registered negative growth in volume in the last two years. Still, in terms of value, the industry has been able to put small increments in these years. Before the current COVID-19 crisis, which has impacted the beer industry and volumes in the current year, South Korea’s trade-reliant economy was among those worst hit by cooling demand of U.S.-China tariff war in 2019. Slower economic growth had an adverse impact on beer consumption in these years.
However, the beer industry has great potential in the country as drinking is considered an important part of social life and is often encouraged at social and business occasions. Although drinking is decreasing among the elderly population for health reasons, overall alcohol consumption remains high, partially due to an increase in female consumers.
Overview of the South Korean beer market
At the start of the last decade, the South Korean beer market was a pure duopoly. Two leading producers controlled more than 90 percent of the beer market. However, the second half of the decade brought some changes in the beer industry. The entry of a third brewer and increasing imports started to cut the market share of the two established brewers. Increased competition from imports, in turn, led the two dominant brewers to introduce new beer offerings.
Leading Korean breweries
The South Korean beer industry is dominated by two large-scale local breweries, Oriental Brewery Company Co., Ltd. and HiteJinro Co. Lotte Chilsung, another large-scale brewery, entered the industry by launching the “Kloud” brand in 2014. These three large-scale breweries together accounted for nearly 85 percent of beer sales in 2019.
Oriental Brewery (OB)
Oriental Brewery, a subsidiary of AB InBev is the largest brewer in South Korea. Based on sales revenue, Oriental Brewery, also called OB, has around a 50 percent market share of the South Korean beer market. In 2019, Oriental Brewery saw an operating profit of around KRW 409 billion.
Established by the Doosan Group in 1952, it was purchased by InBev in 1998. In July 2009, it was sold to an affiliate of Kohlberg Kravis Roberts & Company as the parent company sought to reduce its debt. However, AB InBev retained the right to repurchase OB five years from its sale, at predetermined financial terms, and in April 2014, OB became a subsidiary of AB InBev again.
Oriental Brewery sells the popular beer brand Cass, which was the leading beer brand in South Korea in 2019, as well as a number of other top-selling mainstream beers, like OB Golden Lager and Cafri. In addition, the company imports and distributes many AB InBev brands in Korea, including Budweiser (cans), Corona, Beck’s, Stella Artois, Leffe and Löwenbräu.
HiteJinro is the second largest beer producer in South Korea. The company is a merger between two alcohol companies: Hite Brewery and Jinro. Hite Brewery was established in 1933 as a liquor company. Jinro was established in 1924 as the first Korean beer company. In 2006, Jinro was acquired by Hite, thereby forming HiteJinro.
HiteJinro’s beer business has been losing money for the past few years. The company posted a KRW 22.5 billion (USD 19 million) operating loss in 2014, and since then continued to suffer losses due to fierce competition and costs related to promotional activities. In 2019, the company surpassed KRW 2 trillion in sales on the back of the popularity of “Terra” beer and “Jinro Is Back” soju and made a turnaround in seven years. The company share of the beer market has risen from 27 percent in 2018 to 33 percent in 2019. It has also established import distribution partnerships with international beer companies to capitalize on increased demand for imported beer.
HiteJinro has been actively tapping overseas markets like the Philippines lately. In January 2020, HiteJinro Philippines was established in Manila. It is the company’s sixth overseas subsidiary after those in Japan, the United States, China, Russia and Vietnam.
Increasing number of microbreweries
Leading domestic breweries use large amounts of non-malt grains such as wheat and rice to reduce costs and soften flavors. They have focused on lager-style beer over the years, reflecting South Korean consumer preference for dry, milder-flavored beers. However, evolving consumer tastes have forced domestic breweries to launch or expand production of beers with more malt and hops.
Much like the European countries, craft beers are becoming increasingly popular in South Korea. The number of microbreweries in South Korea has increased sharply from 61 in 2014 to 133 at the end of 2018 due to huge consumer demand.
Rising beer imports in South Korea
Beer imports have steadily risen in South Korea in recent years. However, 2019 put a small brake on the pace of imports.
South Korean beer imports totaled USD 281 million in 2019 according to government import data, down 9 percent from 2018.
In 2019, beer imports from the United States registered a growth of nearly 80 percent. The United States’ exports of beer to South Korea were USD 66.61 million during 2019, according to the United Nations Comtrade database on international trade.
Beer imports from Japan have seen historic declines during 2019 and 2020. In 2018, South Korea was the biggest export destination for Japanese beer makers, such as Asahi, Kirin and Sapporo. Japan shipped beer worth JPY 800.34 million (USD 7.3 million) to South Korea during the year, according to the data from Japan’s Ministry of Finance. Boycotts of Japanese brands by South Korean consumers have also hit the Japanese beer exporters.
New taxation system
The South-Korean government has transitioned from a value-based liquor tax system to a volume-based system for beer since January 1, 2020. Under the volume-based liquor tax, beer is subject to an KRW 830.3 (72 cents) per liter liquor tax. Beer distributed to restaurants and bars in kegs will be taxed at KRW 664.2 per liter (a 20 percent tax discount) until the end of 2022, after which it will be taxed the same as other beer.
Lower taxes for premium domestic beers
The policy change is expected to benefit higher-quality beer, as higher-priced products have seen the largest decline in liquor taxes. Under the previous taxation, premium domestic beers were taxed higher than cheap beers which discouraged brewers in South Korea from selling high quality specialty beers. Most mass-produced, lower-priced beer will see a minimal change in taxes.
The new system taxes domestic and imported beer brands equally at KRW 830.3 (USD 0.7) per liter, which makes domestic beer slightly cheaper, but makes imported beer more expensive. As a result of the new initiative, imported beers are expected to register a steep decline.
The taxation system until 2019 imparted imported beers a price advantage of nearly 20 percent. This practice forced domestic brewers to produce a part of their total production outside South Korea.
Good news for small brewers
In May 2020, the South Korean Ministry of Economy and Finance and National Tax Service announced a plan to revise the current liquor tax law. Some measures were planned to go into effect in the third quarter and others were planned to pass the National Assembly at the end of the year 2020.
The revision will allow small-sized craft brewers to mass produce their products in a can by consigning manufacturing to large facilities. An official from Kabrew, a local craft beer maker, said that more than 100 small-scale breweries are welcoming the move as they can increase production in cooperation with bigger partners.
Local manufacturers only need to report changes in the recipe or alcohol degree instead of going through complicated procedures to receive approval, as long as the modification does not affect safety.
Adding nitrogen to beer to create a smooth and silky texture will also be possible after the revision.
Would you like to know more about the South Korean beer market or the beverage industry in other countries? Then join us at the next drinktec which will take place in Munich from September 12 to 16, 2022.
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