Cass maker OB aims to rival Budweiser

OB (Oriental Brewery) CEO Jang In-soo. / Korea Times photo by Shim Hyun-chul

• Published Jun 9, 2013 3:18 PM KST
• Updated Jun 9, 2013 3:18 PM KST

By Lee Hyo-sik

OB (Oriental Brewery), Korea’s largest brewer faced with an increasingly saturated market, is turning its eyes beyond national borders to become a major global beer producer. The company, which already exports 40 beer brands to over 30 countries, wants to further raise its profile abroad by introducing beers that rival Heineken, Budweiser, Corona and other popular brands.

In an interview with The Korea Times, OB CEO Jang In-soo said the brewer reclaimed the No. 1 spot here in 2011, 15 years after it ceded the crown to archrival Hite. He said the company will make more efforts to increase its market share.

Jang said the separation of ownership and management has been the key to the company’s recent successes, despite the continued domestic consumption slump and other unfavorable conditions.

“Our beer exports last year exceeded $100 million for the first time,” the CEO said. “Thanks to our advanced manufacturing knowhow, coupled with the booming ‘hallyu,’ or the Korean cultural wave, across the globe, we were able to achieve this milestone. Beer drinkers overseas have begun noticing our products.”

OB, established in 1933, shipped a total of six million boxes of beer to 30 nations in 2012. One box consists of 20 bottles.

The brewer operates three domestic plants in Icheon, Gyeonggi Province; Cheongwon, North Chungcheong Province; and Gwangju. The three plants, which employ 1,600 workers, are capable of producing 1.28 million liters of beer annually. The company, owned by two global private equity funds — Kohlberg Kravis Roberts (KKR) and Affinity Equity Partners (AEP) — made 1.2 trillion won ($1.08 billion) in sales in 2012.

“We will continue to introduce a wide range of products tailored to diverse consumer tastes in each market,” Jang said. “We will try to market our own brands, including Cass and OB Golden Lager, rather than export products as an original design manufacturer (ODM). We hope to mobilize more resources overseas to emerge as a major beer producer in Asia.”

Jang, dubbed “ the master of sales” in the liquor industry, never attended university. After graduating from high school in 1973, he began his career with Hite. Jang was promoted to senior sales positions over the years thanks to his sales skills and leadership.

In 2010, he joined OB as vice president for sales, playing a key role in helping the brewer reclaim its top market position. In June 2012, Jang was promoted to company CEO. Over the past year, the brewer has widened its lead over its rival Hite.

According to the Korea Alcohol & Liquor Industry Association, OB accounted for 59 percent of the local beer market as of February, compared with Hite’s 41 percent. In May 2011, OB’s market share surpassed Hite for the first time in 15 years. At the time, its shares stood at 50.3 percent, while Hite had a 49.7 percent share.

Exports in full swing

Using its domestic success as a springboard, OB now wants to focus more on overseas business to secure loyal non-Korean customers amid the increasingly maturing local market.

“When we market our products abroad, we conduct extensive research on what types of beer consumers like. We then manufacture and sell what they want. This is the most important principle for our overseas venture,” the CEO said.

The company is exporting its original labels, including Cass and OB Blue, as well as products on the ODM basis upon orders of overseas buyers.

OB has been shipping beer to Hong Kong since 1988 under the “Blue Girl” brand. It is the most popular beer in the city even though it is 50 percent more expensive than other products. OB exports about three million boxes of Blue Girl annually.

“Blue Girl is OB’s ODM brand in Hong Kong and it has topped the beer drinkers’ list there,” he said. “It is popular with Hong Kong consumers because we constantly update Blue Girl in accordance with their changing tastes. In the near future, we will market it to Korean consumers to repeat its Hong Kong success here.”

Using local distributors, OB also exports ODM beer to Japan under several brand names. It ships about two million boxes of low-malt sparkling beer, such as Barreal, which caters to the discerning taste of consumers in the world’s third-largest economy.

“We haven’t paid much attention to promoting our own brands abroad,” the CEO said. “From now on, we will place top priority on marketing Cass, Golden Lager and other original brands in foreign countries.”

OB Golden Lager, introduced in 2011, has attracted keen attention from beer drinkers in Australia, and in England, the Netherlands and other European countries. Currently OB ships the lager to 14 countries.

Since 1996, OB has exported Cass, its most famous brand, to Mongolia and other Asian countries. Its export volume has increased at a sustainable pace over the years and the brewer plans to market the brand in Europe and other parts of the world.

Reclaiming No. 1 spot after 15 years

After joining OB in 2010, Jang orchestrated a scheme to overtake Hite. In May 2011, the company snatched the No. 1 spot from its rival for the first time in 15 years.

“For a long time, OB was No. 1, but it ceded the crown to Hite in 1997. It then reclaimed the top spot 15 years later. I think OB is the first Korean company to stage such comeback,” the CEO said. “I think our employees worked hard under a common goal, in addition to the company’s coordinated sales tactics and solid brand portfolio.”

Jang said that when he became vice president, OB stopped forcing distributors to order more than they needed.

“Many manufacturers tend to force sales agencies to buy more than they need in order to boost sales. But OB ended this dubious practice to promote co-prosperity with our partners. Our distributors no longer have to stock up inventories,” he said. “This has helped us distribute freshly produced beer to retailers and consumers. The fresher beer is, the better it tastes.”

The end of so-called “push-sales” practices has encouraged distributors to sell more OB products than those of its rival, Jang said. “We would like to establish a true partnership with our distributors and subcontractors. This shared-growth has helped us offer consumers better products and regain market shares.”

OB has also introduced a series of Cass brands, such as Cass Lemon and Cass Fresh, to target young consumers. “In line with rapidly changing consumer preference, we have marketed a wide range of beer brands that are appealing to young customers,” Jang said. “This has contributed to our recent success.”

Above all, the “can-do spirit” has played a crucial role in transforming OB into an industry leader, the CEO said.

“For many years, OB employees lacked self-confidence. When I came in 2010, I tried to help them regain confidence,” he said. “OB used to be reluctant to hire new workers and make investments. But now our majority stakeholders allow the management to make new investments and launch aggressive marketing tactics.”

Separation of ownership and management

Jang said the separation of ownership and management has been the key to OB’s recent success.

“I think OB is a model enterprise that successfully separates management from ownership. Our stakeholders trust professional managers 100 percent and allow them to make decisions at their discretion,” the CEO said. “This has made it possible for the management to make a timely decision and strengthen corporate competitiveness.” KRR and AEP each own a 50 percent stake in the brewer.

Since 2009 when the private equity firms acquired OB, they have invested a total of 200 billion won to upgrade the three plants. They plan to invest 72 billion won this year.

Jang said that in contrast to widely-held concerns that private equity funds largely focus on increasing a company’s value through drastic restructuring in order to sell it at a higher price, KKR and AEP have been paying attention to OB’s long-term growth.

“The majority stakeholders are not interested in short-term gains. I think they are strongly committed to nurturing OB as a globally-competitive brewer,” the CEO said.

“I think family-controlled conglomerates here should consider adopting OB’s ownership and management structure to create a model corporate citizen and achieve sustainable, long-term growth.”