Market Report

South Korea

South Korean consumers looked at their expenses during 2009. Inset: local product makgeoli. Opposite: Windsor overtook Imperial Classic for the first time in history

Shochu/soju 132,677.0 146,137.0 129,043.0 -11.7

Whisky 2,636.5 2,861.5 2,562.7 -10.4

Vodka 36.0 84.0 97.0 +15.5

Tequila 18.5 57.0 58.7 +3.1

Flavoured spirits 53.5 54.3 56.8 +4.6 -

Biandy 95.0 51.7 35.8 -30.9

Rum 36.8 37.3 31.2 -16.1

Gin/Genever 20.3 18.0 17.5 -2.8

Other spirits 854.0 1,308.0 1,317.0 +0.7

All volume figures in 'OOOs of 9-litre cases SoLircc: The IWSR 201012

scotch sees downtfadinq Downtrading was the key trend in the South Korean market in 2009. The IWSR ana'yst Jose Luis Hermoso reports

Frum wine to soju or beer, from Soju to rnakgeoli, from I 7yo Scotch to 1 2yo, South Korean consumers looked at their expenses during the economic turmoil of 2009.

As the global economic crisis unfolded, the South Korean wholesale channel destocked massively, with many suppliers stopping deliv-ery to recover unpaid cash. The first quarter of 2009 was a scary picture, with industry num-bers down by 19%. Corporate expenses were slashed or scrutinised more than ever by large corporations to save costs - and in South Korea, more than anywhere else in the world, sUch expenses are a key part of an executive position package, as they allow professionals to nourish a network and entertain clients in a way that is fundamental to the traditional way of doing business in that market.

These corporate expenses are key to the health of the most important deluxe Scotch whisky market in the world. Scotch declined by 11% in South Korea in 2009 to 2.45m cases, but super-premium-and-above Scotch (over 17 years old) fell more than I 2yo Scotch, showing a clear downtrading trend. Super-premium-and-above Scotch represented 26% of total Scotch corisump-tion in 2008, but only 25% in 2009, although South Korea is still easily the

censed wholesalers) it undertook an aggres-sive trade strategy, offering high incentives to wholesalers to the Modern on-Trade (MOT) channel. This, coupled with a new security cap that prevents refilling and falsification, seems to he the reason for Windsor's success. Imperial has been slower to react, but now it is also adopting a security cap that ensures the content of the bottle is genuine - and advertising the fact. Imperial is not the only problematic Scotch brand for Pernod Ricard in South Kcirea, as Ballantine's, once the first successful Scotch brand in South Korea, but now seen as slightly old-fashioned after years of under-investment by Allied i)omecq, con-tinues to slide.

The only joy for the Scotch industry caine from the malt category, which continued to see double-digit growth from its small base. Malt, unlike Imperial or Windsor, is con-sumed mainly in bars (MOT). The initial refusal by malt brands to supply the SOc 1 bot-tle, key to penetrate the Traditional on-Trade (TOT) channel of saloons of private rooms, has had the effect of narrowing its target market to a sophisticated whisky drinker in high-end modern outlets. The

number one super-premium Scotch market in the world at over 650,000 cases - nearly double the second-ranked US market.

Looking at brands, Diageo's Windsor 12 overtook Pernod Ricard's Imperial Classic for the first time in history. After Diageo recov-ered its import licence (which was cancelled for six months in 2007 for supplying to unli-

30 1 IWSR SEPTEMBER 2010

Market Report

South Korea

1TIl i ai i1 -ii ii iriIr rTflf1 i'i' in v2004 FTiTFI1:

2004 2008 1% 1%

1% 1% 0% 1%

2 4% /

ODiageo

•Pemod Ricard

DCL Financial

DHite Brewery

•Brown Forman

OCuervo

•LVMH

DWm Grants

DEdrington Group

DOthers

Macallan and The Olenfiddich account for 85% of the 47,000-case malt market in South Korea, just under 2% of the total Scotch market: opportunities for further growth are still intact, especially now that Diageo is also investing in The Singleton and Pernod Ricard in The Glenlivet.

There are some niche categories that are seeding investment among students for future growth in this market. Tequila - mainly Cuervo, 1800 and Sauza, Absolut vodka and agermeister are all investing in the universi-

ty areas of Seoul among students who they see as the trend-setters of the future.

Jogermeister's sponsorship of student parties with free cases is notorious, and the brand claims 7,000 cases in South Korea last year, all in shots among the student community.

Absolut and tequila are also promoting themselves in bottle-sharing consumption among the top MOT venues to appeal to a part of South Korea's upcoming generation that wants to break with the previous model: so far, as Koreans age and enter into the rigid South Korean corporate rat race they always get into Scotch.

Vodka is now close to a lOO,000-case cate-gory in South Korea, up strongly by 15.9% in 2009 versus 2008, with Absolut representing nearly a third of the market. There has been an increase in imports of unknown cheap pouring brands and refilling is also becoming an issue for vodka in some outlets.

Tequila grew more moderately by 3.1% to tinder 60,000 cases. With a weak US dollar versus the Won, the market saw less incom-ing parallels for the leading brand Cuervo. In the past, parallels largely came from Macao. Interestingly, Durango, a tequila-style brand made in the US that is sold as if

it were tequila, ranks second. The intro- - just over 30,000 cases: the category duction of Cuer\ os secondary brand

, inex

point than Cuer o, is intended

Cuervo made 1800 and Sauza Tres Generacioncs j /

] /

content problems in its / introduction into South

imich larger, pensive market of soju. Also a

Cognac continues to suffer from its ageing

completcl from the gifting business further

Year and the Mid Autumn Festival hyper markets sell gift packs on a return basis: if the item does not sell, the supplier is obliged to

occasion also depressed under this challeng-ing economic environment, the gifting husi

The exit of ROmy Martin from the Maxxium distribution structure has meant the focus of the Maxxiuin team in Korea, while still distributing Rémy Martin, has

Macallan, a growing brand and driving the Maxxiurn operation in Korea.

With all these factors combined, Cognac lost 30% in Korea in 2009 and now reaches

SEPTEMBER 2010 IWSR 31

1 7 peaked at 100,000 cases in 2002 and Tenampa, a true tequila at a lower price has declined eei since.

The decline in imported spirits has to fight Durango. been severe, but soju, h5 far the

leading alcoholic drink in South Korea, also suffered. Soju lost

both sell significant volumes / I 17m cases in 2009, down nearly at the premium end, while / 12%. E en beer lost 6.2% in 2009 PatrOn has had methanol

/ to reach 1 7.4rn hectolitres This is a

i reflection of how South Koreans / have refrained from dining out, as

Korea. White spirits have most soju and beer is still consumed in the disadvantage in South restaurants in south Korea. A bottle of Korea of being assimilated soju in a South Korean restaurant will into the retail for 2,000 3,000 Won ( 1.70

$2.50) for its usual 36c1 format, and for hite spirit, soju can serve as a base for cock under 900 Won ($0.75) in a supermarket.

tails, as it does in Japan, though in Korea it Interestingly, part of soju's lost sales have is usually consumed straight. been caught by a previously unfashionable

category: makgeoli. Makgeoli, or takju, as it image, and the fact that Hennessy withdrew is also known, means "unclear", as has a

white cloudy look. Makgeoli is made by depressed the maiket. During Chinese New fermenting a mixture of boiled rice and

water. It is also a Inure economic alternative to soju in traditional Korean restaurants and has nov become socially acceptable, even

recover it tinder contract. With the gifting fashionable, after appearing as such in mod em South Korean movies and being endorsed by famous South Korean pop

ness has become unprofitable. singers. Well publicised Japanese interest in makgcoli has also helped its image in Korea.

south Korei has recovered more quickly than othei markets, hut this recovery has been government driven and the de aluatmon of

understandably shifted towards The the Won has played a role in this export-ori-ented market. 2010 is expected to he another challenging year, with lo single digit growth for Scotch, and Cognac volumes settling down at their current levels. U