Changing tastes challenge to OB, Hite

Local beer brands introduce ale beers

By Choi Kyong-ae

Hite Jinro's Queen's Ale

Changes in consumer tastes often force companies not to settle for the status quo but to reorganize or overhaul their businesses. Now it's the turn of brewers.

Korea's two biggest beer makers ― Oriental Brewery and Hite Jinro ― are both planning to add an ale-type beer to their lager only portfolios in order to capitalize on growing demand for ale, the companies said.

Hite Jinro said Thursday that it will introduce Queen's Ale, the first of its kind launched by a local beer major, early next month in the domestic market to compete against multinational beer brands that have ale sales on the rise.

As consumers begin to feel uncomfortable with the fact that OB and Hite Jinro have a duopoly on the domestic beer market and only produce lager, the two beer firms had no other option but to diversify their lineup in order to sustain their lead, analysts say.

The move was also triggered by an article published in November. Daniel Tudor, a correspondent who was then based in Seoul for the Economist, wrote that South Korean beer is so boring that "brewing remains just about the only useful activity at which North Korea beats the South. The North's Taedonggang Beer tastes surprisingly good."

Beers fall into two broad categories: ales produced by top-fermenting yeasts and lagers made with bottom-fermenting yeasts. Generally, lagers are attenuated, cleaner, rounder and less fruity than ales. Ale-type beers include Hoeggaarden and Guinness, while lager-type beers include Budweiser, Heineken and Krombacher.

"Until recently, consumers have been exposed only to Korean-made lagers that they believe go well with spicy or salty local foods. But they increasingly want diverse beer options to choose from," Hite Jinro spokeswoman Nho Eun-jung told The Korea Times.

So Hite Jinro, the country's second-biggest brewer by sales after OB, partnered with Alectia, a Denmark-based beer laboratory, to develop its first ale beer in the past three years, said the spokeswoman.

The decision comes after the company suffered declines in sales because a growing number of consumers prefer foreign brands such as Asahi, Heineken and Budweiser to local brands due to the taste variety despite higher prices.

In the six months ended in June 30, Hite Jinro posted a 50 percent drop in net profit at 35.99 billion won ($32 million) from a year earlier. Its sales fell 6.8 percent to 913.82 billion won during the same period.

Fed up with the "monotonous" taste of lagers available at every corner of the country, Koreans begin to look for something different, Han Kook-hee, a beverage analyst with Woori Investment & Securities, said. "Domestic beer brands should have taken care of changing appetites of customers earlier. But as the saying goes, better late than never."

These days, young generations put greater value on the taste of beer and many of them refuse to take a bomb shot, or poktanju, during office dinners. The changing trend is also weighing down sales of beer. Poktanju is a mixture of lager beer and soju, which is consumed in one or two gulps. Soju is a Korean distilled rice liquor similar to vodka.

OB also has a plan to launch an ale beer in the fourth quarter to woo particularly young consumers who are more exposed to ale-type beers while traveling abroad or studying overseas, OB spokesman Oh Young-seop said. But he didn't provide details of the plan.

Making competition tougher in the home market, Lotte Liquor, a unit of Lotte Group, is building a domestic facility to enter the beer market in the first half of next year.

"It is part of our long-term plan to transform Lotte Liquor into a comprehensive beverage company. But we have yet to decide on whether to produce an ale beer or a lager," Lotte Liquor spokesman Yoon Soo-han said.

Lotte Liquor's current lineup includes soju, whiskey and refined rice wine. Hite Jinro and OB both produce beer and soju.

In another major catalyst urging big brewers to change, the government offered to cut taxes on micro breweries such as 7brau by 20 percent under a revised law to help them compete better against bigger rivals such as OB, Hite Jinro and countless import brands.

"The revisions will allow micro breweries to sell their beer to stores as well as individuals. It will provide a level playing field for big and small beer makers in the long term," Hwang Dae-chul, senior deputy director at the National Tax Service's Corporate Taxation Bureau, said.

Currently, micro breweries are allowed to sell beer they make only to individuals, not to commercial shops such as discount stores and convenience stores, Hwang said.

The revised liquor tax law awaits approval from the National Assembly in December. If approved, the eased regulations will take effect from January in favor of mom-and-pop beer brands.

In the domestic beer market that reached 4.23 trillion won last year, foreign beer brands took a share of 5.4 percent, up from 4.5 percent a year earlier, showed NTS data. But domestic brands' share remained unchanged at 95 percent during the same period.

Seven out of 10 beer products sold globally are lagers and the remaining three are ales. In Korea, more than nine out of 10 are lagers, said beer makers. Simply put, there is a huge growth potential for the ale beer market.

"It won't take long before Korea will catch up with the "global consumption level" as local companies have joined their foreign rivals in the ale beer market," said the beverage analyst.