The World Cup finals, a global gala of one of South Koreans’ most-watched sports, football, will open in Brazil in June, and one local industry is determined to score big, hoping to land its products in the hands of TV viewers during the games.
Lotte Chilsung Beverage Co. is set to debut its first-ever beer no later than early May, and Shinsegae Food Co. is also showing interest in entering the beer market.
“We plan to launch our beer by early May at the latest ahead of the opening of the World Cup,” a Lotte Chilsung official said by phone, requesting anonymity. “Details such as the percentage of alcohol and the types of beer have yet to be decided.”
Shinsegae Food confirmed through its Feb. 26 regulatory filing that it will add brewing to its portfolio.
“The decision is part of efforts to diversify our business line,” a Shinsegae Food official said, also declining to give his name. “We need to further conduct a feasibility study of the beer business.”
The company will hold a shareholders’ meeting on Friday to get approval for the new business.
Race for the Korean market
The local beer market was worth nearly 4 trillion won ($3.8 billion) in 2012 compared with 3.6 trillion won in 2009, according to data by the Korea Alcohol & Liquor Industry Association. Beer shipments amounted to more than 2 million kiloliters in 2012, up 2 percent from the previous year.
The recent change to the law opens the industry to even smaller players.
The standard requirements for fermentation and storage tanks were halved to 25 kl or more and 50 kl or more, respectively, to help small- and mid-sized brewers enter the local beer market.
Microbrewers can now sell their products outside of their breweries. Until now, sales of their products were limited to their own stores. Taxes on products from small- and mid-sized brewers were reduced by up to 40 percent.
But there is a firmly set duopoly that will be hard to break up. As of March 2013, excluding imported beer, Oriental Brewery Co. had a 59.50 percent share of the market compared to 42.50 percent in 2009, with its rival Hite Jinro Co. holding 40.50 percent, according to the association.
The business attractiveness of South Korea’s beer market appeared to be validated when Anheuser-Bush InBev, the world’s largest beer producer, bought back OB for $5.8 billion in January.
The Belgium-Brazilian multinational beverage company had sold South Korea’s biggest brewer to two global private equity funds ― Kohlberg Kravis Roberts and Affinity Equity Partners ― for $1.8 billion in July 2009 to reduce loans incurred by a merger. At the time of the sale, the company had included a clause that allowed it to buy back OB in five years.
Anheuser-Bush InBev did return, saying it wants to expand its presence in the Asia-Pacific area and the fast-growing Korean beer market.
Lotte Chilsung, a unit of South Korea’s fifth-largest conglomerate Lotte Group, completed a pilot brewery late last year that has an annual capacity of 50,000 kl. It plans to invest 700 billion won on building its main brewery with an annual capacity of 500,000 kl between 2015 and 2017.
Their beer will be produced under a business tie-up with Japan’s biggest brewer Asahi Breweries Ltd. The two companies set up a joint venture, Lotte Asahi Liquor, in 2000.
Before building its own brewery, Lotte Chilsung joined a race to acquire OB in 2009 but gave up because of the high bidding price.
Lotte Chilsung’s beer division is forecast to post an operating loss of 17 billion won in the first six months of sales due to higher initial marketing costs, Lee Kyung-joo, an analyst at Korea Investment & Securities Co., said in his January report.
It is expected to swing to the black in 2016, Lee said, citing the business tie-up with Asahi and its huge distribution networks as positive catalysts. (Yonhap)