Korean wineries in uphill battle against foreign wines

By Kang Hyun-kyung

In the four decades since Haitai Group released Noble Wine in 1974, the first wine to be made in Korea, the share of imported wines in the Korean market has been increasing, gradually pushing out local wines.

According to data from the Korea Alcohol and Liquor Industry Association (KALIA), in 2009, Korean and foreign wines had almost equal market share with 49 percent and 51 percent, respectively. In the next few years, however, the share of local wines fell steadily, and in 2013, was down to 34 percent.

The production of fruit-based alcoholic beverages began to increase in the 1970s when then President Park Chung-hee encouraged breweries to make alcoholic beverages with fruit instead of rice because he believed the use of grain to make such beverages was a waste, especially amid the crop shortages.

The good old days for local wines were short-lived, however. In the 1980s, when an import ban on foreign wines had been in place until 1988, wine consumption rose 10 to 30 percent annually. However, since the opening of the local wine market months ahead of the Seoul Summer Olympics, foreign wines have gradually increased their market share.

Kim Jun-cheol, the founder and president of JCK Wine School in southern Seoul, said several local wineries decided to close their businesses in the 1990s after realizing that making wine was no longer lucrative. He said the high costs of property and labor pushed up the price of homegrown wines, which made them less competitive.

“Suppose that local and French wines are competing in the market and their prices are almost the same. Which one would you buy? Consumers naturally opted for the French wines, and local wineries suffered as a consequence,” he said.

Kim was a former winemaker for Dong-A Pharmaceutical. The company had operated a 660,000-square-meter winery in the small city of Boryeong, southeast of Seoul, from 1986 to the mid-1990s, when European wines started expanding their market share in the country.

“The grape varieties grown in Korea are not suitable for making wine, either,” he said. “The berries here are relatively big and aren’t sweet enough to produce quality wine. Winemakers had to add sugar to make sure the wines have 12 to 14 percent alcohol content after fermentation, and this negatively affects the taste. The grapes here are tasty, but they are table grapes.”

According to Kim, there are similarities between wine consumption patterns and stock market trends in Korea. “Wine consumption had grown by double digits in the 1980s and the 2000s when the economy was relatively good, but it fell sharply when the economy was hit hard by the financial crisis in the late 1990s and negatively affected again by the global financial crisis in 2007,” he said. “When the economy goes bullish, wine consumption goes up. When the economy is bearish, so is the wine market.”

Kim Jun-cheol, the founder and president of JCK Wine School in Seoul / Korea Times file

An agricultural chemistry graduate from Korea University, Kim applied his knowledge of fermentation and winemaking while working as a wine expert at Dong-A, where he witnessed firsthand the ups and downs of the wine market.

According to Kim, then CEO Kang Shin-ho, now chairman of the company, is a wine lover. Kang was determined to expand his business into wines at a time when wine consumption was increasing by double digits. In 1986, Dong-A purchased a Daegu-based winery, which produced Korea’s first fruit-based alcoholic beverage, Apple Wine Paradise, in 1969, and introduced its line of wines, Wihayeah, or Cheers in 1987.

With Kang’s support, Kim took a leave of absence in 1987 for one-year of professional education in winemaking at California State University at Fresno. In late 1988, when he returned home after finishing the enology program, he realized that the wine market in Korea had changed significantly during his absence.

The import ban was lifted in 1988 and European wines were being sold in Korea. Dong-A also began importing wines from Europe. By the early 1990s, management had ordered him to reduce wine production, and he knew that it was all downhill from there. In the mid-1990s, the company finally decided to close its wine production, costing Kim his job.

After years of struggling to find a stable job, Kim opened JCK Wine School in 2000, where he has since taught 2,500 students in numerous beginner- to master-level courses.

In the past four decades since Korea’s first wine was launched, three key events occurred that negatively affected local wineries and ultimately pushed them out of business — the lifting of the import ban in 1988, the Asian financial crisis in 1997 and the global financial crisis in 2007.

The wine boom in the 1980s benefitted the local white wine brand Majuang. Launched in 1977, the local brand had dominated the market, capturing 80 percent of the market at its peak. The wine was a blend of domestic grapes and extracts of grapes imported from foreign wine-producing regions, such as Mosel in Germany and Medoc in France. Encouraged by the rapid increase in the consumption of wine, several distilled liquor breweries, such as Jinro, Kumbokju and Daesun, jumped into the wine market, only to close in the mid-1990s.

Majuang, however, was able to survive the tough competition because it has been used in Catholic Masses. The annual guaranteed sales of 300,000 bottles helped the local brand stay afloat amid the influx of imported wines after 2003, when Korea’s free trade agreement with Chile went into effect.

Although Koreans are drinking wine more than ever before, the share of wine in the total consumption of alcoholic beverages in the country is still very low — only 1.5 percent in 2013 according to the KALIA data. Beer and the distilled liquor “soju,” which have always dominated the local consumption of alcoholic beverages, accounted for the rest.

But wine consumption in Korea falls behind the global average. According to Kim, the average Korean drinks only one 750-milliliter bottle of wine annually, compared to the global average of five bottles. “Koreans love grain-based alcoholic beverages, and that’s why beer has a much higher market share than wine. Older Koreans enjoy “makgeoli,” which is made from rice. It’s called a ‘labor spirit’,” he said. “Both makgeoli and beer are post-workout alcoholic drinks because people enjoy drinking them after a day’s work or after exercise.”

The first beer brand in Korea was introduced in the 1930s, and over the decades, beer gradually replaced makgeoli. Kim remains optimistic about the growth of wine consumption, but he said the rate of growth may not be as fast as that of beer.

“The Korean public in general doesn’t like fruit-based alcoholic beverages. Wine consumption has gradually increased in the past decades because of an increase in wine aficionados,” he said.