Consumption Patterns

Korea is one of the biggest markets for alcoholic beverages in the world. For many, drinking is considered an important part of everyday life and is often encouraged at social and business occasions. Although drinking is decreasing among the elderly population mainly because of health concerns, the market is getting more new drinkers from the younger generation and the female population.

Although wine consumption has grown remarkably over the past decade since full-scale market liberalization in 1991, wine is still consumed by a very small portion of the population. The main stream wine consumers tend to be high-income urban residents, most of whom are either young professional in their 30’s and 40’s or financially accomplished people in their 50’s and 60’s. Wine sales comprise less than 2 percent of total alcoholic beverage sales in Korea. A Vinexpo report indicated that the annual per capita wine consumption of Koreans was 0.5 liters as of 2005. According to a 2004 industry survey, 77 percent of all wine consumption in Korea took place in the Seoul metropolitan market which represents about 35 percent of total population. In terms of volume, lower-end products under KRW 10,000 a bottle accounted for about 50 percent of all wine consumed in Korea.

Korean tastes are heavily skewed to red wine due to the highly publicized health benefits of drinking red wine. Currently, red wine commands over 75 percent of the market and is not likely to lose its dominant share in the near future. However an increasing number of consumers are becoming interested in white and sparkling wine as the idea of wine-food pairing begins to develop in the market (A large part of the Korean diet is composed of hot and heavily spiced dishes incorporating abundant use of vegetable ingredients, which suggests best matches with white and sparkling wine).

Beer and Soju are by far the most consumed alcoholic beverages among the general public. All Soju and most of the beer sold in Korea are manufactured locally and are sold at much cheaper prices than imported wine. For example, one 360 ml bottle of Soju retails for less than 50 cents. Although the consumption of hard liquor has been on a gradual decline in recent years due to health concerns, Soju sales have maintained a steady growth partly backed by the launch of new products that contain less alcohol (most popular Soju products now contain less than 20 percent alcohol). Beer is also showing a sign of growth with local brewers’ launching of new products (in particular stout style dark-color beers) and a steady increase of imports. Although declining in popularity due to health concerns and tighter government guideline on corporate spending in luxury bars, Korea remains one of the biggest markets in the world for premium hard liquors including Scotch whiskies.

Figure 2: Imports of Alcoholic Beverages by Korea (by Value)

Retail Market (Off-Premise)

Even though there are no official statistics available, industry analysis indicates that largescale supermarkets (including hypermarkets and discount stores) currently lead wine sales in Korea with about 55 percent of market share (on a volume basis). Specialty liquor shops and convenience stores cover another 8 percent and 4 percent of the market, respectively. It is expected that the large-scale supermarket channel, in particular hypermarket stores, will gain additional market share in the coming years as more Korean consumers switch to larger size stores for one-stop convenience and better value.

With the rapid expansion of large-scale supermarkets across the nation, there is less room left for wholesalers to play a role in retail wine distribution. However, the importerwholesaler- independent small-to-medium size grocery store route still is an active marketing channel where access to large-scale retail stores is difficult, such as small suburban areas or old, congested metropolitan areas.

Large-scale supermarkets now operate designated wine sections and offer quite a large selection of wines to everyday shoppers. A typical hypermarket store carries about 100 to 200 different varieties of wines, most of which are entry class to mid-level price products under KRW 40,000. Currently, no large-scale retail chains import wine directly for their stores on a regular basis except COSTCO Korea. Large-scale retailers are expected to move into direct import business in the near future.

Although far less in number than grocery supermarkets, there are many stand-alone wine shops and specialty liquor stores, independent or under franchise chain operation, popping up in metropolitan areas which target serious wine consumers. A few of these wine shops, in particular those operated directly by wine importers, offer the largest selections in the market with over 500 different varieties of wines, most of which are mid-level price and premium segment products above KRW 40,000 a bottle. Convenience stores, most of which are under franchise chain operation, are another emerging player in the market. Although each outlet carries less than a dozen different varieties of wines, convenience stores now offer the most extensive retail network in Korea as the total number of stores across the nation is fast increasing (over 10,000 stores as of May 2007). Currently, there is no zoning regulation in Korea that restricts the number and location of liquor retailers in a given area, which is partly responsible for the proliferation of liquor retailers throughout Korea. However, on-line sales of alcoholic beverages through the Internet, mail, or TV home -shopping are currently prohibited.

About 30 percent of annual wine sales are purchased and given as gifts during the following holidays: Korean Thanksgiving Day ("Chu-Sok", September), Christmas, New Year's Day, Lunar New Year's Day (usually in early February), Valentine's Day (February), and Parent's Day (May). Backed by the on-going “well-being” trend, wines are increasingly replacing traditionally popular gift sets of whisky or other hard liquors. Products in the mid-level price segment constitute the largest portion of the gift set market.

Competitors

Many Koreans still harbor the perception that France is the source of best quality wines in the world. France remained the biggest exporter of wine to Korea with a 39.3 percent market share in 2007, which is 0.7 percent point higher than the previous year. It is notable that a Japanese cartoon series, titled "Water-drops of the Gods", has sold over 500,000 copies in Korea since its publication into Korean language in late-2006 (new volumes keep coming) and contributed greatly to the strong rise of French and Italian wines by delivering positive images about the wines from these two old world regions not only to experienced wine drinkers but also to those new to wine. Before the introduction of this cartoon, the market share of French wine in Korea had been on a decline as France lost significant shares in the entry class and mid-level price segment of the market to value-oriented new world competitors (the United States, Chile and Australia). The continued appreciation of the Euro against the U.S. Dollar has further deteriorated price competitiveness of French products in the value-oriented segment. As a response, French suppliers have shifted their primary target to the mid-level price and premium segment of the market, which is less susceptible to price fluctuations.

Chilean wine exports to Korea continued a strong rise in 2007 with a 65.8 percent growth. Chile surpassed the United States to become the second largest exporter of wine to Korea in 2005 backed by the strong publicity pull around the Chile-Korea free trade agreement. Under the FTA, import tariffs on all Chilean wines are scheduled to be eliminated by 2010.

Chile will present tough competition to American wine in the mid-level price segment in the coming years. However, Chilean wine presents little competition for white and sparkling wine. Capitalizing on Korean consumers' growing interest in European culture and product, Italian wine made a strong rush into the Korean market in 2007. Imports showed a stunning 118.1 percent growth. As a result, Italy became the third largest wine exporter to Korea, pushing America to the number four position for the first time. This explosive growth was mainly led by lower-end, easy drinking red and white wines. However, Korean wine aficionados, influenced by reviews of well known international wine critics, are also increasingly interested in Italian wines in the mid-level price and premium segment. Italian white wines with small amount of bubbles (Frizantte) have started to sell in large volume for the first time in Korea since the second half of 2006. This trend suggests that Korea could become an important market for white and sparkling wine in the future.

Although small in overall market share, products from minor origins, including Argentina and New Zealand, continued to exhibit outstanding import growth through 2007. This trend adds additional competitive pressure to American wine, while contributing to the expansion and diversification of the overall market.

Export-oriented competitors are investing significant resources into marketing and promotional efforts targeting Korea. Competitors’ major marketing programs include: tasting seminars; paid-invitation of wine traders and press to overseas wine exhibitions; hosting cultural events incorporating wine component; organizing commercial consumer trips to wineries; exhibiting at local trade shows; supporting local wine schools with free samples; and working closely with local wine experts including providing supports to Korea sommelier competitions.