Foreign beer brands growing fast; Rising popularity poses threat to OB-Hite duopoly who account for over 90 percent of the market

2013-08-13 16:40

Foreign beer brands growing fast

Rising popularity poses threat to OB-Hite duopoly
By Yi Whan-woo
Two local powerhouses ― Oriental Brewery (OB) and Hite-Jinro ― are facing a growing challenge from foreign makers. The two Korean breweries account for over 90 percent of the market, but market observers anticipate the share of foreign alcoholic beverage firms will consistently rise as more consumers become willing to spend money on premium beers.
The market share of foreign firms reached 5.7 percent in the first quarter of this year, up from 4 percent in 2010, according to Korea Alcohol & Liquor Industry Association (KALIA).
Japan’s Asahi tops the list of international beer brands in terms of sales. Its average annual sales in Korea increased by 47 percent from 2005 to 2012.In Korea, Asahi beers are sold by Lotte Asahi, a joint venture between Lotte Chilsung, a Korean leading food and beverage company, and Asahi Breweries, a leading beverage manufacturer in Japan.
The Tokyo-based beer manufacturer reportedly plans to raise the market share of Asahi beers in Korea to 0.9 percent by the end of this year.
“The figure may seem trivial compared to the combined market share of OB and Hite-Jinro,” a market observer said. “However, we expect that rate can reach the 1-percent range or higher in a shorter period of time because more middle-class consumers favor Asahi over local brands.”
Asahi Breweries expanded its stake in Lotte Asahi from 15 percent in March to 34 percent in August, as sales of its flagship beer product in Korea continue to grow.
“Korea is our biggest overseas market among the 70 countries in which we have entered,” said a company official who declined to be named.
Last Thursday, Lotte Asahi opened a pub near Gangnam Station in southern Seoul to promote its draft Asahi beer. The pub will operate until Sept. 30 to encourage consumers to try the new beer while enjoying their leisure hours at one of the country’s most popular hangouts.
Another Japanese brewery is taking steps to increase its Korean market share. Kirin Ichiban is running a promotional event in Busan to introduce a frozen craft beer named after the company. This event comes after a previous event that took place between June and July in Sinsa-dong, southern Seoul.
Some domestic companies are also taking steps to steal market share from OB and Hite-Jinro. Lotte Chilsung will complete the construction of a beer brewery this year in Cheongju, North Chungcheong Province.
“We have completed 75 percent of the construction work and plan to produce our bottled beers from the first half of next year,” the company said.
Lotte Group’s beverage affiliate already produces soju, a Korean distilled liquor, and holds a 14-percent share in the soju market. The firm said its entry will likely change the local beer industry because of the firm’s significant know-how in the alcoholic beverage business.
A medium-sized beer manufacturer, 7 Brau, which has been selling its products to discount chain stores and department stores since 2011, is also working to increase its market share.
“Our sales this year has increased seven times so far compared to last year, and we often cannot cope with the high demand,” the company’s spokesman said.

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About Koon Boon Kee
Bamboo Innovator Institute is set up to establish the thought leadership of resilient value creators around the world. KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia. The Moat Report is developed together with our European partners The Manual of Ideas (www.manualofideas.com), the idea-oriented acclaimed monthly research publication for institutional and private investors. The MRA’s paid-subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities and savvy private individual investors. KB has presented his thought leadership as a keynote speaker in global investing conferences with speakers including famed serious investors Donald Yacktman, Howard Marks, Jean-Marie Eveillard etc. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, macroeconomic and industry trends in Singapore, HK and China. KB has been rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm since 2002. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Mirae Asset Global Investments, Korea’s largest mutual fund company. He holds a Masters in Finance and degrees in Accountancy and Business Management, summa cum laude, from the Singapore Management University (SMU). He had also taught accounting at the SMU. He had published cutting-edge empirical research in the Special Issue of Istanbul Stock Exchange 25th Year Anniversary of the Boğaziçi Journal, Review of Social and Economic Studies, as well as wrote articles about value investing and corporate governance in the media.

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