Kimchi marketing, celebrities become inseparable
By Kim Da-ye
Former Benetton model and radio DJ Hong Jin-kyung was not only well-known for her tall, lean figure resembling Olive Oyl in the Popeye cartoons, but also for her mother’s kimchi.
Hong initially gave out the kimchi for free to her single friends living alone, and words spread out quickly through a large network of her acquaintances in the entertainment industry.
For about a year, Hong’s mother would make kimchi at home for profit, leading Hong open an online kimchi shop called “thekimchi” in 2004.
Hong helped design non-transparent, silver plastic bags with “the kimchi mother made” neatly printed on them, her brother Hong Kyung-han, who now oversees the business, recalled in an interview with Business Focus.
The demand then became uncontrollerable, and Hong had to find a food manufacturer that would mass produce kimchi with her mother’s recipe. A year later, she set up a corporation named after her and became its CEO.
That is how Korea’s first celebrity kimchi brand was born. Not only did the private company generate 18 billion won in revenue last year, it inspired a series of kimchi brands associated with celebrities.
The marketing of kimchi and celebrities is now inseparable.
Actors Bae Yong-joon of “Winter Sonata” and Oh Ji-ho of “Slave Hunter.” Actresses Kim Hye-ja of the movie “Mother,” Lee Yeon-kyung, Kim Soo-mi, Kim Na-woon and Um Aing-ran. Singer Jang Yoon-jung. Martial artist Choo Sung-hoon.
They have all been or are associated with kimchi. The majority of them advertise kimchi brands named after them, while rarely anyone runs a company their own like Hong.
The actual business operators are small and medium enterprises with their own CEOs. Many of them do not even have manufacturing facilities, and outsource kimchi making to existing factories. The firms usually give a stake to the celebrities who market the brands as though they own them.
Kimchi is the essential, ubiquitous Korean pickle most commonly made of nappa cabbage, salted and sprinkled with various spices including red pepper and garlic.
The Korea Rural Economic Institute (KREI) estimates 959,000 tons of cabbage kimchi or 19.6 kilograms per person was consumed in 2010, down 13 percent from a year earlier.
The portion of those who make their own kimchi has steadily dropped from 70 percent in 2001 to 57 percent in 2010 while the percentage of people buying it climbed just one percentage point from 9.3 percent.
The gap has been filled by an increase in those who procure the side dish from their families and relatives, according to KREI.
But as more households are expected to give up making it themselves, the kimchi manufacturing industry is expanding.
As of 2009, there were 694 kimchi makers — 8.5 percent of them had sales of 2 billion won or more and 46.1 percent did less than 100 million won, a survey by Statistics Korea showed.
One clear trend is that many of the side dish makers are moving online although people still prefer buying kimchi in supermarkets, which are dominated by the Jonggajib brand Daesang FNF.
“Companies sell kimchi in supermarkets at losses because they need to hire marketing people who run tasting events and give out promotional tasters. They also pay a lot in fees to retail giants like E-mart,” said an official from a kimchi company who did not want to be named.
“Without having to pay those sales fees and marketing expenses, those with their own online shops can make a profit at about five to 10 percents of the sales.”
Daesang recorded an operating loss of 7.82 billion won in 2010, according to its annual financial statement. It spent 12.34 billion won in sales promotion costs, nearly half of the 24.62 billion won it spent on wages.
Because the privately-held company also makes tofu and processed meat, it is difficult to track exactly how much of a loss was made from the kimchi business. But kimchi is clearly Daesang’s major product.
As cyber-shopping emerges as a more profitable model, the competition online has intensified, forcing businesses to seek differentiated strategies. Hiring celebrities to pitch the products has turned out to be productive.
The medium-size side dish maker Dongwongnongsanchan partnered with singer Jang Yoon-jung in launching a new brand called Kimchi Olle in March.
The company had been providing kimchi to cafeterias in schools and state-run companies before working with Jang. In June, the firm said it expects to reach an annual revenue of 10 billion won this year.
Celebrities also make good marketers in another sales platform — home shopping television shows. In Korea, most products sold on television shows including kimchi are endorsed by celebrities who appear with the hosts and try the products on the spot.
As kimchi manufacturers rush into partnering with celebrities, competition among them has been heating up, even leading to a lawsuit.
In May, Hong Jin-kyung filed for an injunction at a Seoul court against Namja F&B’s advertisement that claimed its online Namjakimchi shopping mall has become the most popular kimchi vendor in cyberspace, ending the 6-year reign of Hong’s thekimchi.
Actor Oh Ji-ho is one of the four founders of Namja FNB and a director.
After Hong's firm privately complained to Namja FNB, it only replaced Hong’s name with a “female CEO in the same industry," so the injunction demanded that the advertisement was taken down altogether.
Hong’s firm said that Namja F&B’s advertisement is false, and thekimchi has the largest revenue among online kimchi sellers with a revenue of 18 billion won last year. Hong’s site also sells dumplings, salad and Korean sauces.
While the dispute grabbed the attention of the media, it isn’t the major concern within the industry.
One marketing official from a kimchi firm voiced his concerns over hygiene at manufacturing facilities.
“The kimchi business is extremely vulnerable to any hygiene-related incidents while reputation is all celebrities have,” he said. “If a single celebrity kimchi brand is found to have poor sanitation, consumers would think all celebrity kimchi brands are bad.”
The official explained that not all factories are maintained well, and with the increasing number of kimchi makers partnering with celebrities, it’s only a matter of time before one is found to have hygiene issues.
The World Institute of Kimchi found this year that 45.2 percent of the 250 surveyed manufacturers did not have employees dedicated to quality control.
In November last year, the Korea Food and Drug Administration inspected 1,192 businesses that made kimchi or its ingredients and found 140 not complying with regulations. Thirty three in particular violated sanitation rules.
Celebrity kimchi brands seemed to be well aware of the problem by emphasizing their clean facilities in advertisements.
Nearly all of them say that the ingredients are locally grown while their websites show photos of the kimchi-making process as well as various certificates including one on “hazard analysis and critical control points (HACCP).”
Hong Kyung-han of thekimchi said that the production costs mainly consist of ingredients, packing materials, including styrofoam iceboxes, which shift in price along with those of petroleum, wages and, increasingly, quality control devices such as metal detectors.
At the factory, Hong’s firm is working with a system in which workers check every single leaf of a cabbage by hand after salting them to eliminate the inclusion of any foreign substances, Hong said.
“Some kimchi makers will lose popularity as the public’s interest in their celebrity models drop. They may be replaced by new celebrities,” Hong said.
“As companies come and go, only those who compete with quality will survive 10 years later.”