Bok-rae, Kim (Prof. of Andong National University in South Korea)

Popularizing wine consumption in Korean market Bok-rae, Kim (Prof. of Andong National University in South Korea) E-mail: re33a@chol.com I. Introduction The Korean wine industry was born in 1965 when the Grain Management Act was enacted. The government at that time encouraged grain growers to plant wine grapes which could grow well on Korea s less arable land. In 1973 Oriental Beer (Dongyang) Co. began to plant 40, 000 Riesling vines in Kyongsang province. In 1974, the Haitai company released Noble Wine, the first wine to originate in Korea. In 1977 Doosan group launched its Majuang label. Until 1987 Majuang was the most commonly available type of wine, accounting for around 90% of sales in Korea. Around the time of the 1988 Seoul Olympic Games, foreign wines began to be imported and Majuang's share of the market dropped to around 15%. With the liberalization of wine imports, Korean wine culture - closely linked with high-end consumers - has progressively spread in hotels and upscale restaurants. This year, the Korean wine market celebrates its 22 nd anniversary and shows continuous growth. The total Korean wine market is estimated to be worth \300 billion (about $USD 300 million). In 2005 the total import volume of wine amounted to about $USD 27 million, showing 20% year-on-year growth. Thanks to French paradox and domestic health trends, many Koreans are switching from hard liquor to wine. In spite of these statistics, wine s share of the overall Korean alcoholic beverage market is estimated to be only 0.3%. This is due to several factors. Firstly, three major companies (OB, Hite and Jinro) dominate the Korean alcohol market, commanding 80% of it: their main focus is on beer and Korean and Western liquors. Secondly, wine has a luxurious image which limits its mass consumption potential. In comparison to other alcoholic beverages, wine is also expensive in Korea. Yet, wine consumption in the country does continue to increase. The increase of wine consumption in Korea is not only related to the variegating tastes among the young and trend-setters, but to reflections on Korean traditional drinking habits. In Korea, drinking is social: for building, solidifying or improving group relationships. Drinking together is an identity-forming rite of passage. Another element of Korean drinking culture is that senior members of a group may compel junior ones to drink to 페이지 1 / 15

excess. This exchanging of cups has been criticized as an antiquated authoritarian cultural idea that rejects individual preferences. 1 This criticism has led to the birth of a new drinking culture which is now common among Korean upper classes. Wine drinkers are usually seen as not only upper-class, but also apart (or perhaps above ) traditional Korean drinking customs. Thus, consumption of wine has developed apace with this class s strong preference for high-end brand goods. Wine drinkers in Korea are thought to endorse equality, cleanliness, mutual respect, a sense of liberation, and the esthetics of deliberateness. These concepts are presented as symbolic images in Korean wine consumption culture. In particular, Korean professional classes have embraced this wine culture and sometimes form small friendly wine clubs for enjoying wine according to their differentiated tastes. For example, in an Italian restaurant, Bon Posto, wine accounts for 20% of total sales. Yet, despite factors favorable to eventual mass consumption, tariffs and liquor taxes must be lowered. This would increase price and brand competition which would in turn lead to the popularization of wine consumption. This paper aims to analyze objectives thought to promote the popularization of wine consumption in Korea. A reasonable benchmark of that popularization would be Japan, which already has a very mature wine market. This paper also has ramifications beyond wine consumption in Korea. This is because of the potential for substantial growth of wine consumption throughout the Pacific Rim. This projected growth makes Asia the wine market of tomorrow. This is particularly important when the world wine industry is currently experiencing excess supply. A Korean case study on wine consumption patterns and projections will thus be of use not only to Korean but also foreign stakeholders in the Korean wine market. 2 II. The actual condition of Korean wine market 1. The rapid growth of Korean wine market a. Wine consumption in Korea At present the Korean wine industry is on the brink of a breakthrough to mass 1 When one has emptied his cup, he may give it to the other person and then pour a drink into it for him to drink. Exchanging cups like this affirms friendship and trust. 2 French still dominates in the market. However other countries, especially Chile are closing the gap. 페이지 2 / 15

consumption. The scale of the Korean wine market is no more than 10% of that of its Japanese counterpart, but its rate of growth is the highest in the world. Wine consumption increased from 7 000 000 l in 1999 to 23 700 000 l in 2004 and is expected to reach 38 600 000 l in 2009. Graph 1: Wine consumption in Korea (unit: 10 000 l) Graph 2: The growth trend of Korean wine import market 페이지 3 / 15

b. The causes of the increase in wine consumption 1 2 3 The Westernization of Korean eating habits: Wine culture has spread throughout Korea with the growth of Western foods and eating habits. Health-oriented lifestyles: A medical report, in1997 titled the French paradox promoted the positive health effects of wine consumption. This caused wine consumption to peak in that year. Income Impacts: Preference for wine has increased among people in the upper income bracket. Graph 3: The growth trend of Korean wine 페이지 4 / 15

2. Wine distribution a. Channels of distribution: importers hotels, restaurants, outlets, department stores consumers Graph 4: Market shares by distribution channels 페이지 5 / 15

Graph 5: Market shares by wine importers 페이지 6 / 15

b. The change of wine distribution channels 1 Phases - Initial Rapid Growth: (1988- the mid 1990): This period saw the appearance of private distributors. Korea Tourism Organization and KTS were the main wine distribution channels. - Market foundation development: (the mid 1990 s 2000): This tracked Korea s economic development from the point of $USD 10 000 per-capita income to the financial crisis of 1997-1998. Large outlet malls and department stores became the main wine distributors during this stage. - The expansion period (2000-2006): This period capitalized on the wellness ( well-being in Korean) trend in Korea. Sales expanded to off premises venues: liquor department stores, specialized wine shops, and convenient stores. On- premises consumption included specialized wine bars and high-end restaurants became the main wine channels. Also, general Korean restaurants began to serve wine. 3. The present condition of domestic wine production a. The growth process of Korean wine production 1 In 1974, Haitai company released Noble Wine, the first Korean wine. In 1977 Doosan group debuted its Majuang label. 2 In 1980s, domestic wine production and sales increased by 10-30%. In 1987, due to the liberalization of the wine import market, sales promotions by foreign wine companies, and the preference of Korean wine consumers for imported wines, Korean wine companies lost market share. 3 Korean wine companies produced domestic wines by importing foreign bulk wines or by utilizing the OEM system. Only Majuang red and white wines domestically produced by Doosan Liquor BG have survived on the market to date. b. Other salient trends and facts 페이지 7 / 15

1 Scale of retail Korean wine market: \250 billion 2 Sales of wine in outlets, department stores, convenient stores/supermarkets, special wine shops: \150 billion Less than 10,000 won (per bottle) 10-20,000 won More than 20,000 won Outlet 70% 20% 10% Department store 20% 30% 50% Convenient 80% 19% 1% stores/supermarket Special wine shop 10% 30% 60% c. The trend of wine consumption per capita Year Quantity of Quantity of Total Consumption Population Consumption import (9L import (L) population per capita within the per capita Box) (L) range of within the drinking range of drinking 1988 119,109 1,071,981 42,031,247 0.03 25,218,748 0.04 1989 190,533 1,714,797 42,449,038 0.04 25,893,913 0.07 1990 184,632 1,661,688 42,869,283 0.04 26,150,263 0.06 1991 119,550 1,075,950 43,295,704 0.02 26,843,336 0.04 1992 208,925 1,880,325 43,747,962 0.04 27,581,216 0.07 1993 326,834 2,941,506 44,194,628 0.07 27,842,616 0.11 1994 436,324 3,926,916 44,641,540 0.09 28,570,586 0.14 1995 629,764 5,667,876 45,092,991 0.13 29,310,444 0.19 1996 612,234 5,510,106 45,524,681 0.12 30,046,289 0.18 1997 980,031 8,820,279 45,953,580 0.19 30,788,899 0.29 1998 265,260 2,387,340 46,286,503 0.05 31,474,822 0.08 1999 574,440 5,169,960 46,616,677 0.11 32,165,507 0.16 2000 835,768 7,521,912 47,008,111 0.16 32,905,678 0.23 2001 1,041,686 9,357,174 47,342,828 0.20 33,139,980 0.28 2002 1,232,662 11,093,958 47,639,618 0.23 33,347,733 0.33 2003 1,458,761 13,128,849 47,925,318 0.27 34,026,976 0.39 페이지 8 / 15

d. Korean wine imports France has the greatest share of Korean wine imports (+50%) Recently, due to educational and promotional efforts by USA, Germany and Australia and the Korea- Chile FTA, the French share has decreased. Graph 6: Wine import ratio by country 4. Marketing a. Consumer databases 1 Consumer databases on key men in discount stores (working class), restaurants (upper middle class), hotels (upper class), department stores & specialty wine shops (middle class). 2 Saleswomen in discount stores distributed questionnaires to customers. 3 Executing consumer databases by region on wine site(wine.co.kr) b. Target marketing Marketing strategy by consumer segment and classification of consumption patterns 페이지 9 / 15

c. Market-oriented strategy In the Korean wine market where wine consumers are still developing, key men in wine distribution recommend this marketing strategy. The sales of products strongly driven by wine importers tend to increase. Thus, product release and success pivot on a close relationship of sales and marketing teams and a capitalization on consumer & market trends. d. Attracting consumer attention by discount coupons or giveaway events III. The present situation of Japanese wines 1. Market trends From 1995 to 2002 a wine boom was at its height in Japan, even though wine consumption shows a -2% growth rate now. a. The causes of the wine boom in Japan Since 1995, when Mr. Shinya Tasaki became the first Japanese to win the annual World's Greatest Sommelier Concours, Japanese people have been interested in wine. Now wine has become so popular that even izakayas (Japanese small taverns) serves wine. It is largely owing to the success of marketing both the distinctiveness and the health benefits of wine. At the same time, wine met developing social needs or craving for new alcohol cultures and products. b. Japanese wine production. The total volume of wine in the Japanese market amounted to 269,053 kl: domestic wines (38.5%) and imported wines (61.5%). Thanks to a red wine boom, the ratio of red and white wines reversed. Now, the ratio of red to white is 56:37. However, in the total Japanese alcoholic beverage market (where beer consumption is traditionally strong) wine consumption per capita is only 2l per year. As a comparison in France the same figure is 62.8l; in Italy, 54l; in the UK, 14l; in the US, 7.9l. The recent trend of Japanese wine consumption is polarized. While Japanese consumers show preferences 페이지 10 / 15

for the best wine brands, average wine prices are falling due to economic deflation and exchange rate changes. The Japanese wine industry depends heavily on foreign ingredients because of their low costs. For example, domestic wine is 170yen/kg, but imported bulk wine is 119yen/l. Imported extract juice/wine is 212yen/l. The imported wine ingredients meet the demanding quality standards of the Japanese. Japanese also import these ingredients despite general barriers to other imports of agricultural products in Japan. For instance, 90% of Japanese grapes are directly consumed: only 10% are used for brewing purposes. Further, grape growing and wine making are separated. As a means to improve the quality of domestic wine, Japanese wine makers use imported ingredients and brand them by using their remarkable brewing skills. The number of Japanese wine makers totals 300, with the market share of the top five more than 80%. These 5 major companies have not only taken part in forming a Japanese vision of wine through a large sum of advertisement & cultural marketing, but also contributed to the propagation of Japanese wine. This has paralleled by a steady increase in Japanese wine quality and demand. By purchasing a large amount of Japanese grapes the domestic wine industry has also promoted domestic grape cultivation. Nonetheless, it is undeniable that Japanese wine industry s heavy dependence on imported ingredients has been led and continually confirmed by the big 5. On the other hand, Japanese small and medium wine makers in the main have endeavored to survive on the market through their differentiated strategies like product differentiation (100% pure domestic wine, preservative-free wine, organic wine, etc.), service differentiation, winery tours and similar strategies.. c. The future direction and tasks of the Japanese wine industry The first task of Japanese wine industry is to create a truly Japanese wine indigenous to the Japanese climate. Wine is a taste food which has its own diversity and personality. Nonetheless, the Japanese climate makes it impossible to produce as high a level wine as European countries (France, Italy, Spain, etc.). However, the impact of European climates may be overstated. This is evidenced by the success of new continental wines from the Americas and Australia. Further, Japanese wine cuts occasionally a conspicuous figure in world wine concours. Thus, what is needed in the Japan wine industry is a strategy which differentiates domestic from imported wines, not price competition. In Japan foreign wine ingredients are better appreciated than 페이지 11 / 15

domestic ones, but it is equally evident that Japanese wine is more suitable to Japanese people and Japanese food. Thus, it is desirable to create a Japanese wine which will show the peculiarity of the Japanese grape. Japanese wine makers have produced various kinds of domestic wines with many suitable for the palate of Japanese people - such as the apple wine made by Santori Brewery Co. For this purpose, the following tasks are needed: the development of a new brand of Japanese grape, a stabilized supply of domestic wine ingredients through a symbiosis between Japanese wine industry and agriculture, the reorganization of laws relating to wine, a campaign emphasizing wine s health and environmental friendliness, and the consolidation of on and offline wine marketing. Based on the high level of the Japanese economy & personal income and growing wine consumption among women and young people, the Japanese wine market can be expected to continue growing. Viewing the aforementioned developments of the Japanese wine market, it can thus serve as valid benchmark and projection for the possibility of popularizing wine consumption in the Korean market. IV. SWOT Analysis 페이지 12 / 15

V. Conclusion In comparison to Japan, the great majority of wines consumed in Korea are exclusively imported ones. According to Korean research on the ratio of domestic and imported wine consumption, the market share of domestic wine may approach zero after 2011. In the wake of the Korea-Chile FTA (which will give a blow to Korean farmers), some wine growers and local governments tried to make domestic wine. However, the idea of making wine purely to dispose of an oversupply of grapes is dangerously simplistic. Such wine, brewed from low-grade grapes, cannot expect broad sales among Korean consumers. For the long-term development of domestic grape cultivation and the domestic wine industry, and for the creation of proper Korean wine, it is necessary 페이지 13 / 15

to cultivate a domestic brand of grape exclusively destined for wine-making, to establish a cooperative system between farms and the wine industry, and to develop independent wine technologies. Once considered symbol of elegance, wine is now a fundamental part of mass culture. After 1990, wine culture rapidly disseminated due to the opening of liquor department stores. With whisky, wine became the main selling item as a gift set in liquor department stores during holiday seasons. Wine bars began opening after 2000. Not only salary men (office workers) but also students frequent them. The causes of wine consumption are due to the increases of Koreans interest in health, the diversity of food culture (including growth of a restaurant culture), the growth of wine bars and shops, private wine clubs for wine-lovers, and wine institutions/academies. This trend has also been impacted by an increase in Korean tourists or students going abroad, the liberalization of imports, and the change of Korean drinking culture: for example, preference for less powerful alcohols. The level of Korean wine professionals has also quantitatively and qualitatively increased. The increase of wine-related mass media: web sites, books, magazines and academies is also noteworthy. One might call it a Renaissance in of Korean wine education. According to research on total wine consumption, in 2010, wine consumption will increase to between 21.8% to 48.3% (from 14,632kl in 2000). Korean wine importers, shops and bars have taken an enormous leap forward. However, the rapid growth of the Korean wine market also shows some problems. Firstly, the kinds of imported wines are still not varied, because only well-known imported wines sell well. Thus, lesser known wines can make no headway. The maturity of the wine market is also needed. The sales of discount stores are so high that those of low and medium price wines hold 45% of the total. Korean consumers tend to rely on retail professionals in their purchase decisions and also love sweet wines because of their lack of wine knowledge. Secondly, the price of wine is still high due to high tariffs and complicated wine distribution structures. The price of an imported wine can increase from 3.5 to 5 times global prices. The development of an industry can be possible only through the positive participation of wine-related businesses and ancillary and synergy effects. The domestic wine market grows rapidly now. Wine imports increased by 40% in price, but only by 12% in volume. Of course, Korean wine consumption holds only 0.3% of the total alcoholic beverage consumption. Wine consumption per capita is 200ml in comparison to 2l in Japan. However, the number of Korean wine importers has increased: therefore, the quantity of imported wines has as well. But the quantity of imports does not automatically translate into higher sales. For 페이지 14 / 15

the growth of the wine market the promotion of wine consumption and its popularization are needed. Thus, it is necessary for the Korean wine industry to reorganize wine distribution networks, to extend consumers interest in wine and market scale by diversifying the category of wine import products, to propagate a well-made vision of wine by restructuring wine importers structure, and to conquer at the same time low, medium, and high-priced wine markets through the maximization of various choices in price. They should also emphasize the cultural marketing of wine through the wine s noble and elegant image and/or the public s interest in health. Finally, I d like to suggest a Korean wine theme park which could secure a wine production and distribution network for popularizing wine consumption and familiarizing Korean consumers with wine. 페이지 15 / 15