The liquor industry has begun overhauling its structure to overcome the double whammy of a prolonged economic downturn and weakened consumer sentiment. Companies plan to respond to the changing market environment by streamlining their workforce, including replacing veteran leaders who have guided the firms for years and carrying out their first voluntary retirements since founding. Next year, they are also expected to put more effort into overseas business.
◇ Liquor industry in full swing with structural overhaul
According to the liquor industry on the 22nd, HiteJinro promoted Executive Director Jang In-seop to vice president in a regular executive reshuffle earlier this month and named Jang as the new CEO. CEO Kim In-kyu, who has led HiteJinro for 14 years since 2011, will serve as an advisor. Known for his work on the marketing and sales front lines, Kim received four renewals of his term and is considered a figure deeply trusted by Chairman Park Moon-deok. The industry views the leadership change as a move to break through market conditions with new leadership. Regarding the reshuffle, HiteJinro said it was "a decision for future growth strategy and expansion into overseas markets."
Jang joined Jinro in 1995 and served as head of policy, managing director of administration, and executive director in charge. If Jang takes office as CEO, a broad reorganization of the company is likely. Identifying new growth pillars beyond the existing portfolio is expected to be a key task.
Oriental Brewery appointed Zhou Yu, born in 1982, as a new CEO in Oct.. The move is seen as an attempt to promote a generational shift and change within the organization by appointing a leader in their 40s. CEO Zhou Yu holds citizenship of the People's Republic of China and was not a member of the Oriental Brewery board until now. Zhou will serve alongside the existing Belgian-born CEO Ben Verhaert (Bae Ha-jun) in a co-CEO structure.
Workforce reductions to slim down organizations are also underway. LOTTE Chilsung Beverage implemented its first-ever voluntary retirement program in the liquor institutional sector last month, 75 years after its founding. Those eligible are employees with at least 10 years of service who were born before 1980. The move is part of efforts to cut expenses and streamline the workforce amid declining performance.
In fact, liquor consumption is trending downward. According to the National Tax Statistics Portal, last year's beer shipment volume was 1,637,210 tons (t), and diluted soju shipments were 815,712 tons, down 3% and 3.4%, respectively, from a year earlier. According to the Korea Health Promotion Institute's "2024 Alcohol Statistics Data Book," domestic liquor consumption per capita among those 15 and older fell about 15% over seven years, from 9.1 liters (L) in 2015 to 7.1L in 2022. It only saw a slight rebound to 8L in 2022.
◇ Efforts to expand overseas business
Key third-quarter metrics for major liquor companies also trended lower. HiteJinro's third-quarter consolidation basis revenue fell 2.4% year over year to 669.5 billion won, and operating profit fell 22.5% to 54.4 billion won. During the same period, LOTTE Chilsung Beverage's liquor institutional sector revenue fell 5.3% year over year to 193.3 billion won. The liquor share of total revenue was 19.7%, dipping below the 20% level for the first time in 13 years. However, operating profit rose 43% year over year to 13.9 billion won, helped by expense-cutting efforts.
Oriental Brewery is unlisted and does not disclose exact results, but parent company AB InBev mentioned a high single-digit decline in revenue in the Korean market in its second-quarter earnings release, suggesting weakness likely continued into the third quarter.
HiteJinro has set "globalizing soju" as a mid- to long-term strategy and is accelerating efforts to expand its overseas production base. To that end, the company broke ground in Feb. on its first overseas production plant in the Thai Binh Province economic zone in Vietnam, aiming for completion in 2026. The goal is to meet surging demand in Southeast Asia and reduce logistics costs to secure local price competitiveness. HiteJinro has nine overseas subsidiaries, but this is the first time it is building a production plant.
LOTTE Chilsung Beverage is focusing on developing distribution channels in North America and Southeast Asia, led by the zero-sugar soju "Saero" and the fruit soju "Soonhari." It is expanding placements in major local retail channels centered on its U.S. subsidiary, LOTTE Beverage America. In Southeast Asia, including the Philippines, it is strengthening production and distribution networks through partnerships with local corporations. The company is diversifying its lineup of export-only brands for liquor and focusing on raising the export share of total revenue.
Oriental Brewery is working to improve profitability by actively leveraging the global network of its parent, AB InBev, the world's largest beer company. While continuing to export existing beer brands such as Cass to Asian markets, the company recently launched "Gunbae Jjan," an export-only soju brand aimed at global markets, expanding its business portfolio beyond beer.
Jang Ji-hye, an analyst at DS Securities, said, "As the domestic liquor market is unlikely to recover easily next year due to the economic slowdown and changing liquor consumption trends, overseas growth is expected to be an important breakthrough," adding, "HiteJinro's overseas revenue is expected to begin full-fledged growth through its Vietnam plant, slated for completion at the end of next year, offsetting sluggish domestic demand." Han Yoo-jung, an analyst at Hanwha Investment & Securities, said, "LOTTE Chilsung's business structure, which was dependent on domestic demand, is being reorganized," adding, "From next year, earnings growth centered on overseas subsidiaries is expected to become visible."