Growing Demand for Wine in Korea Creates New Export Opportunity for U.S. Producers

Cheers! Having recovered strongly from the impact of the 1998 economic downturn, Korean wine imports are rapidly increasing to meet surging consumer demand and are expected to grow at double-digit rates through 2005.
And, although French wines clearly dominate the market, with a little marketing and aggressive promotion, U.S. producers could increase their market share.
Korean import figures clearly give reason for a toast to optimism for U.S. producers. Wine imports in the first quarter of 2000 were up 156 percent from the same period of 1999. Industry experts predict with confidence that 2000 will set a new record-high in wine imports. Until hard-hit by the economic crisis, wine imports expanded rapidly, reaching a record of $22.8 million in 1997. In fact, between 1992 and 1997, wine imports more than quadrupled from $5.6 million to $22.8 million.
The U.S. share of the import market has continuously increased, reaching 14.9 percent value in 1999. Red wine, with 70 to 80 percent of market share, is leading the market. Although U.S. wines appear to need more promotional support in Korea, many importers are actively seeking new-to-market U.S. wines.
A Closer Look at the Market
Libations are an important part of Korean social life and as a result, Korea has one of the world’s highest consumption rates for alcoholic beverages. In 1999, Koreans consumed a record-high amount of alcohol–340,600 kiloliters, averaging 7.3 liters per person. Statistical data from Korea’s Liquor Industry Association indicate that, on average in 1999, every Korean consumed 58.9 bottles of soju, a traditional Korean hard liquor, 61.4 bottles of beer, and 1.28 bottles of whisky. Drinking is popular among males over 18 and among females in their 20s and early 30s.
Wine is still a relatively new beverage in Korea, comprising less than 0.5 percent of alcoholic beverage consumption. Consumers, retailers and many importers have limited knowledge of wines.
Higher incomes, growing interest in wines, well-publicized health benefits of wines, increasing popularity of drinking among young females and Westernization of lifestyle, especially among younger Koreans, have all contributed to rapid increases in wine consumption that are expected to continue for the foreseeable future.
Here’s to . . . Better Times Ahead!
The Korean economy grew by nearly 10 percent in 1999, and growth is expected to continue at rates of 7 to 8 percent in 2000 and 6 percent in 2001. As the Korean economy regains strength, wine imports should enjoy related increases as consumer demand surges.
Of course, back in the heady days before the Asian economic crisis, wine sales to Korea had been explosive. From 1992 to 1997, they more than quadrupled in both value and volume. However, a 50- percent drop in bulk wine imports in 1996 resulted in a slight drop of the total volume of imports. The increase in value reflected both higher prices and growth in bottled wine imports.
Today, the greatest potential lies in medium- and high-quality wines. Red wine, which leads the market with 70- to 80-percent share, is expected to dominate in the coming years because of its perceived healthfulness. White wine comprises about 20 percent of the market, while sparkling wine and dessert wine are a mere 1 to 2 percent of sales. Projected growth rates over the next five years are 30 to 40 percent for red, 10 to 20 percent for white; 10 to 30 percent for sparkling; and 5 percent for dessert wine. French wines have traditionally reigned supreme in Korea’s import market, with a 55-percent share in 1999. However, the reputation of and demand for U.S. wines are growing rapidly; these imports have grown faster than total wine imports since 1993.
With 15 percent of market share by value in 1999, U.S. wines run a respectable second. A marketing advantage for U.S. exporters may be that, since English is the most familiar foreign language in Korea, consumers find it easier to select U.S. wines than European ones. It also helps that U.S. wines tend to have simple labels.
Nuts and Bolts of the Wine Biz
Wines can be imported without any quota restrictions, but only by licensed importers. There are about 150 wine importers in Korea, but a mere 20 of these actively import. Most importers also have wholesaler licenses which allow them to distribute to retailers. In accordance with with the Korean Liquor Act, retailers and end-users may not purchase from other retailers/discount stores for resale purposes.
These restrictions explain the broad range of prices charged for the same wine. Some importers have their own retail stores under different licenses. U.S. wine exporters should contact licensed wine importers to sell their wines in Korea.
Medium-priced wines are generally sold at liquor stores, discount stores and supermarkets; high-priced wines, usually at hotel restaurants. Wine sales fluctuate seasonally because many consumers purchase them as holiday gifts.
Imported wines are subject to relatively lower duty and taxes, when compared to other imported alcoholic beverages. For example, the imported wine duty is 15 percent, the liquor tax 30 percent and the education tax 10 percent.
In comparison, the imported whisky duty is 20 percent, the liquor tax is 72 percent and the education tax is 30 percent. The original intent behind the relatively lower taxes on wine was to promote local production of fruit wines.
Established importers, who are well aware of all inspection and labeling requirements, are the best source of current information on labeling and inspection. French Wines Still Dominate the Market
There are several practical steps that U.S. importers can take to counter the formidable competition offered the European Union, especially France. With the expanding reputation of and demand for U.S. wines, U.S. suppliers can help themselves by participating in wine tastings, food shows, and, most importantly, by establishing personal contacts.
The competition is active; its pockets are deep. French wineries participate in major Korean food shows and hold wine seminars and tastings every year sponsored by the French Embassy and funded by SOPEXA, the French food and beverage promotional agency. Germany, Italy, Australia, Chile and other competitors are well represented at food shows in Korea and hold tastings and receptions for wine importers and food service outlets.
Although perceptions are changing, French wines are still generally considered superior to U.S. wines. U.S. promoters have their work cut out for them; the word "French" is, too often, synonymous with "wine" in the Korean consumer’s mind.
Local wine importers report frustration when trying to obtain information about new-to-market U.S. wines and where or how to source them. They’ve also been heard to lament the current lack of systematic U.S. marketing efforts in Korea.
Many wine importers indicated that they believe the import price of U.S. wine (CIF value) is about 30 percent more than that of imported wines of similar quality from other countries, including France and Italy.
Korean domestic wine grape production is negligible. Korean-label wines are usually rebottled from imported bulk wine.

__________________________________ The author is an agricultural attache at the Agricultural Trade Office, U.S. Embassy in Seoul, Korea, Tel.: 82-2-397-4188; Fax: 82-2-720-7921; E-mail: atoseoul@fas.usda.gov
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