Global liquor corporations are moving one after another to sell equity and wind down businesses. They are boldly selling noncore asset with weak growth to slim down and, instead, focusing capabilities on core businesses with higher profitability. In Korea, the liquor industry is also accelerating a reshuffle centered on slimming product lines, restructuring business, and improving expense efficiency.
As a health-focused moderation trend takes hold and weak consumption persists, the shift to focus on "profitable drinks" rather than "high-volume drinks" is becoming clear at home and abroad at the same time.
On the 12th, according to related industries, Diageo, the world's largest liquor corporations, is considering selling 63% equity in the Chinese premium baijiu company "Shuijingfang." Bloomberg and other foreign media said Diageo has been working with Goldman Sachs and UBS to identify potential buyers.
The review of selling equity in Shuijingfang is not a one-off step. Diageo said last year it would implement an expense-cutting program called "Accelerate," setting a goal to save about $625 million (about 830 billion won) over the next three years. It effectively made official a policy to shed brands and asset that are not part of its core business.
In fact, Diageo steadily shed some asset last year. In Aug., it sold UDL and Ruski Lemon, Australian ready-to-drink (RTD) brands, to Vok Beverages, an Australian liquor company, and in Dec., it handed over its controlling equity in East African Breweries (EABL) to Japan's Asahi Group Holdings. The review of selling equity in Shuijingfang is also seen as an extension of this portfolio-simplification strategy.
French liquor giant Pernod Ricard has begun restructuring its business. In Dec. last year, Pernod Ricard signed a deal to transfer ownership of its U.S. sparkling wine business to Trinchero Family Wine and Spirits, a family-owned wine and spirits company based in Napa Valley. The goal is to complete the sale process by this spring.
Pernod Ricard said in an official announcement that "under our premiumization strategy, we can focus resources on our portfolio of premium overseas liquor and champagne brands." Even within the wine institutional sector, it plans to wind down businesses it deems to have limited growth and revenue, and concentrate on core spirits and champagne.
There is a common backdrop to the moves by global liquor corporations. By selling equity or streamlining at the business-unit level, they are simplifying structures and shifting capital and management resources to areas with higher growth potential. The judgment is that the appeal of "low-margin, high-volume" products, such as beer or low-priced wine that require high sales volume to generate revenue, is not what it used to be.
An industry official said, "With the spread of health-focused consumption trends and the establishment of a moderation culture, overall alcohol consumption is declining, so mass-market liquor businesses with low margins are becoming a burden for companies," adding, "They appear to be reshaping portfolios to prioritize profitability over sales scale and focusing on product lines that generate revenue from even a single bottle sold, such as whisky and premium spirits."
Korea's liquor industry has yet to see clear examples of equity sales or business exits like overseas. Instead, it is staking everything on adjusting product and business portfolios and improving expense structures.
Lotte Chilsung Beverage discontinued two draft beer products, "Crush" and "Kloud," at the end of last year. As profitability in the draft beer channel fell due to a slump in the dining-out and nightlife markets, and the high cost structure unique to premium beer compounded the issue, the company decided to streamline the business.
Kloud is a premium lager that uses 100% malt and aroma hops, carrying a higher cost burden than general products. The company discontinued only the draft beer supplied to pubs, restaurants, and fried-chicken specialty stores, while keeping cans and bottles as before. Lotte Chilsung Beverage said, "We ended operations of the Crush and Kloud draft beers to reorganize the beer business and focus on core product lines for efficient operations."
Along with this, Lotte Chilsung reduced its product lineup last year by discontinuing items such as "Kloud Fresh Draft" and "Kloud Calorie Light." Nonalcoholic products were also targets for streamlining. The company consolidated the brand by winding down the existing "Clear" and "Clear Zero" and integrating them into "Kloud Non-Alcoholic," continuing a brand-centered reorganization.
Hitejinro is placing more weight on structural improvement through strategy and organizational reshuffling rather than equity sales or product discontinuations. After a CEO change late last year, Hitejinro has emphasized expanding overseas markets and strengthening global competitiveness as key management directions. Recognizing the limits of domestic-demand-driven growth, it plans to seek breakthroughs in exports and overseas markets.
An industry official said, "The starting point of restructuring is the judgment that it will be difficult for alcohol to sell in large volumes again the old way," adding, "Now is the time to redesign business structures to match the changed consumer environment."