Diageo Korea to close plant after 39 years

By Kwak Yeon-soo

Diageo Korea CEO Lee Kyung-woo

Diageo Korea has decided to close its last remaining plant in Icheon, Gyeonggi Province, due to falling whisky sales, the Korean unit of the British premium whisky maker said Wednesday. The facility, which covers about 64,000 square meters, will be shut down in June 2020.

Established in 1981, it has been bottling Smirnoff vodka for export and Windsor Scotch whisky specifically tailored for the Korean market. In 2009, the London-based distiller sold the plant with a 20-year sale-leaseback.

However, the company decided to close down the plant before the expiration date due to a poor utilization rate and weak sales.

“The decision has been difficult and it has come after careful consideration,” a Diageo Korea official said. “The unfavorable business climate in exporting countries, low utilization rate and loss of competitiveness were the main reasons for the shutdown decision.”

About 29 full-time employees and 90 subcontractors are expected be affected by the latest decision.

When asked if the company has any plans to downsize the workforce, the official said “Reshuffling is a necessary step for us. Full-time employees will be transferred to headquarters, whereas subcontractors will be handled by our partners.”

A portfolio of Diageo brands / Courtesy of Diageo

The nation's whisky consumption has continued to decline over the past few years, as a growing number of Koreans tend to drink less hard liquor. The implementation of the anti-graft law, which took effect in 2016, has also reduced sales of high-priced alcoholic beverages.

Whisky sales in Korea declined 6.2 percent to 1.49 million boxes in 2018 from a year earlier, according to data. A box is calculated as 18 bottles each containing 500 millimeters of whisky.

The figure is roughly half of the 2.84 million boxes sold in 2008, when sales peaked.

Diageo Korea posted 303 billion won ($250 million) in sales between July 2017 and June 2018, down 6.8 percent from 326 billion won the previous year.

Its operating profit also dropped 34.5 percent to 37.2 billion won during the same period.

“Whisky sales have fallen in Korea as more consumers move toward mild alcoholic drinks,” an official from a liquor company said. “To curb the downward trend, most top whisky brands have decided to cut prices and expand investment in research and development.”

Diageo Korea is the local unit of the U.K.-based liquor giant, which has brands including Johnnie Walker and Guinness.