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Wine fever has struck Seoul. The Koreans are not – or at least not yet - interested in food pairings, but they are certainly in drinking wine. Lots of it! Although most were raised on Soju (a traditional local liquor akin to vodka), beer and whisky, wine has become fashionable. As a rising tide of wealth and consideration for personal well-being engulfs households, young and trendy Koreans have begun paying more attention to wine at the expense of hard liquor.
One of the causes of wine fever is thought to be a television programme, The Secrets of Life: Wine, which was broadcast nationwide in 2004. The impact was similar to what happened in the US after the ‘French Wine Paradox’ episode of 60 Minutes was screened: Koreans headed to the wine shops. A previous television special on the potential health benefits of red wine had also attracted younger consumers, particularly women, to a wine market that had, until then, been populated by older and more affluent customers. Ever since, value has risen faster than volume, indicating that wine consumers – although drinking more - prefer quality over quantity. Yet wine still accounts for only a small percentage of the total alcohol trade.
Workers in their late 20s and early 30s have shown the greatest interest in wine. And they’re drinking to enjoy themselves, rather than being forced into drinking copious quantities of alcohol, as tradition dictates. Some are obsessed, eager to read wine books, and join groups for monthly tastings online. This, of course, happens more often in the capital, where 90% of wine consumption takes place. In other parts of Korea, wine books sell almost as well as bottles, with Japanese manga such as Kami no Shizuku (God’s Tear Drops) being a popular read. The comic series features a hero trying to track down 12 bottles of wine; written by a brother and sister team, it includes wine notes that are sometimes now featured in wine store advertising. The series has been so successful that it has boosted the sales of European wines. Wine knowledge has become such a social given that it is difficult for a corporate leader to survive dinner without at least a simple understanding of wine – and as Korean firms go global, the belief that wine can help facilitate business dialogues trickles down the corporate ladder. And newspapers, magazines and weekend supplements are filled with wine and wine-related stories. Imported wine currently accounts for about three quarters of Korean consumption, up from only 50% some ten years ago. Local wine production (from bulk imports) has stagnated, even fallen. When the wine market was opened in October 1987, only 12 importers started a wine business. Four years later, in 1991, the importation of liquor was opened to foreign companies, but wine sales only truly began to boom when direct retail sales, which today account for the lion’s share of imported goods, were introduced in 1995. In 1997 sales peaked, but suffered during the Asian currency crisis that began in |
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1998.
Today there are 450 wine dealers with import licenses, about 75% of which are active. Which wines fare the best? France is first, with Chile close behind. While many of the world’s wine exporting countries are prospering to an extent in Korea, Chilean wines are particularly powering ahead. Ranking only seventh in 2002 with 4.1% market share, they jumped to 14% and second place within a year and now stand at 17%. The Free Trade Agreement between Korea and Chile contributed greatly to this success. A gradual reduction of excise duties was followed by a total exemption of import tax, giving Chilean producers a major advantage, theoretically allowing them to appeal to younger consumers with an offer combining both quality and a reasonable price. But did consumer prices drop? No. Although they could have fallen by as much as 15%, importers booked the profits and invested in Chile. In the future, though, Chile may lose market share due to the new FTA wines from USA or Europe.
Wine is a luxury item
Wine is still largely regarded as luxury item in Korea. The total tax burden on imported wines remains, at about 68%, very high, so that the average price of a bottle of wine last year was nearly $10, considerably higher than the world average. The fact that Korea taxes wine based on export value rather than volume or alcohol raises the prices for higher quality wines – and healthy profits for the dealers - even further, penalising the drinker who wants to trade up. Not surprisingly, Koreans who travel are sometimes shocked by the sticker prices they see on the domestic shelf, but the market nonetheless continues to grow substantially every year.
The total market was estimated at $545m (€384m) in total added value in 2006. Imports stood at $88m. While French wines remained number one with a 37% market share, they are steadily losing ground. Chile at 17% was second, the USA with 14% third and Italy with 10% - yet showing enormous growth potential due to the rise in the number of Italian restaurants - fourth. Last year looked even brighter. In the first half of the year imports were up 77% to $81m, so that total shipments finally surpassed the $100m mark for the first time since 1987. Red wines continue to be much more popular than whites; eight in every ten imported bottles are red.
“I ring because the wine was really good and your telephone number was on the back label. Could you send me six bottles by tomorrow?” Importers often receive such calls, but can’t ship to consumers at all. Importers only import. Only retailers can distribute wines. The Korean system still largely resembles the American three-tier system, but some importers do have dual licenses, acting as both importers and wholesalers.
Online offline
The only ways to advertise wines are in magazines and online. No television advertising of wine is permitted. And although Korea is one of the world’s most developed Internet |
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nations, it is illegal to sell wines online. Given that wines were mainly introduced to Korea through restaurants, on-premise sales still account for 55% of all turnover. Recently, though, off premise sales have begun to increase – and the hypermarkets look to be the long term winners over department stores or wine shops.
Korean hypermarkets such as Emart (a subsidiary of Shinsaegae with 107 outlets), Home-Plus (a joint venture between Samsung and Tesco with 64 outlets) and Lotte Mart (54 outlets) are both customer-oriented and highly competitive. Wal-Mart and Carrefour still lag far behind. These groups’ wine displays grow each year and account for over 60% of all off-premise sales. Department stores, on the other hand, aim at the high end. They know that they cannot compete on price. Hyundai, Lotte and Shinsegae try to differentiate themselves there both in their presentation and the quality of their wine offered. Winenara, a chain of specialised wine shops, does well in spite of the fact that it does not have the financial backing of a conglomerate. Instead, it has partnered with Allied Young Fortune Brands and Daeyoo to gather synergy. Together, they operate several wine bars and restaurants as well as wine schools, so the off-premise market share of Winenara approaches 10%.
Although there are some specialized importers such as the Italian Vinovino or the Pinot Noir specialist Vitis, all eyes remain on the conglomerates. If the market continues to grow, Emart and Home Plus may well found their own importing subsidiaries – and begin to take an interest in big brands. Although there is already fierce competition for market share, mergers and acquisitions are still foreign words. Korea, the world’s tenth largest economy, has a long history with its own liquors – and whisky is still a favourite. In fact, the county ranks fourth in the world in whisky imports. As wine remains a comparatively highly taxed drink, per head consumption is still only about one bottle a year – but for those Koreans who have started to consume wine on special days like the lunar New Year or in September at Chuseok, the Korean version of Thanksgiving, growth will surely continue.
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