Consumer prices for wine are quite high in Korea. A combination of import tariff, taxes, distribution costs and mark-ups result in retail wine prices being two to four times those in the United States.

Tariffs, Taxes and Pricing

Korea applies a complicated tariff and tax system to imported alcoholic beverages. In general, tariffs/taxes applied to fruit wine, including grape wine, are:                                                                               A. Tariff: 15 percent
B. Liquor Tax: 30 percent
C. Education Tax: 10 percent

Fortunately, fruit wine is subject to relatively lower tariffs and taxes compared to other types of alcoholic beverages. It is not likely that the liquor or education taxes on fruit wine will be increased as the Korean government maintains a policy that products of higher alcohol content should be subject to higher liquor taxes. In addition, the Korean government intends to promote the production of local fruit wines by maintaining relatively lower taxes.

The free trade agreement signed between the United States and Korea will remove the import tariff on all American wine immediately after the FTA is ratified by the U.S. Congress and the National Assembly of Korea. Many local traders expect that the FTA will significantly increase imports of American wines to Korea not only because of the reduced import prices but also because of the press exposure and positive publicity it will generate. However the benefit of the FTA may not last long as EU-Korea FTA negotiations are currently in progress.

The following table illustrates the effects of import tariff, taxes and distributor mark-ups on a
$10 (CIF: Cost, Insurance, Freight) bottle of imported wine:
 

Thus, a $10 (CIF) bottle of imported wine typically retails for about $22 to $27 at discount stores, $29 to $34 at supermarkets/ liquor stores and $34 to $97 in hotel restaurants. Overhead expense, payment conditions (i.e., cash versus 60 days credit), product turnover rate and sales volume are key factors governing the level of mark-ups taken by different retailers.

The Korean government introduced a “Liquor Purchase Debit Card" regulation in 2001 as a safeguard to prevent black marketing of liquor products as well as tax evasion in the supply channel. The regulation mandates that distributors and retailers use exclusively a registered debit card bank account when paying suppliers for alcoholic beverages including wine. This mechanism is designed to provide the government with a tool to monitor the traffic of alcoholic beverages in the distribution channel.

Exchange Rate

The Korean Won had continued its appreciation against the U.S. Dollar through 2007 and early 2008, making American wine more affordable to Korean importers. However, since October 2008, the value of Korean won has plunged against both the U.S. Dollar and the Euro. This sudden change of exchange rate, coupled with wide spread worries about the local economy in the coming year, have made local imp orters and distributors extremely conservative with respect to new purchase decisions. However, many economists forecast that the Korean Won will regain strength against the U.S. dollar in the coming year as the international financial market recovers stability.