E-Malt.com News article: South Korea: HiteJinro's beer sales projected to drop in Q1 this year

HiteJinro has struggled in the institutional sector since the ambitious launch of its beer Kelly ahead of its 100th anniversary. In the two years following Kelly's release, beer revenue has plummeted, leading to a downward spiral with decreasing factory utilization rates. Consequently, there are evaluations that this has become a self-inflicted wound that hampers the overall beer business of the company, Chosunbiz reported on March 28.

According to the consensus from the securities industry on the 28th, HiteJinro's beer sales in the first quarter of this year are projected to be 179.7 billion won, a 7% decrease compared to the same period last year. During the same period, the operating profit is expected to be 5.6 billion won, a 23% drop.

HiteJinro had expected the revival of its institutional sector through the "pulling effect" of Kelly and its existing beer Terra, marking the 100th anniversary of its foundation last year. However, it faced a backlash instead.

Looking at the whole of 2024, HiteJinro’s standalone beer sales decreased by 3.4 billion won (-0.5%) from 728.8 billion won in 2023 to 725.4 billion won last year. When combined with subsidiary financial information, the consolidated revenue only rose by 0.04%. Considering that the effect of the 7% price increase in beer in November 2023 will be fully reflected in 2024 revenue, the actual decline in sales volume can be viewed as greater.

In contrast, soju sales during the same period rose from 1.2299 trillion won to 1.2998 trillion won, an increase of 69.9 billion won (5.7%), showing a marked contrast.

According to the Financial Supervisory Service's electronic disclosure, HiteJinro's beer factory production reached its peak immediately after the launch of Kelly in 2023. The production volume, which was 558,000 kiloliters in 2022, increased to 579,000 kiloliters in 2023. However, it sharply dropped to 514,000 kiloliters last year.

This is still below the level seen in 2021, when the previous beer Terra began to significantly increase its market share, producing 525,000 kiloliters.

HiteJinro produces Terra and Kelly at its Gangwon factory and Jeonju factory. Production at the Gangwon factory decreased from 290,000 kiloliters in 2023 to 253,000 kiloliters in 2024, while production at the Jeonju factory dropped from 289,000 kiloliters to 262,000 kiloliters.

As production volume fell, the factory utilization rate naturally declined as well. Last year, the Gangwon factory's utilization rate was 61%, while Jeonju's was 67%. The average utilization rate was about 64%. This marks a drop of 4 percentage points and 7 percentage points, respectively, compared to 65% and 74% in 2022.

An expert in the beer industry said, "Typically, the factory utilization rate is considered fully operational at an average working rate of 70-75%. HiteJinro is far below this in both factories," adding, "This indicates that after recording a temporarily high utilization rate during the launch period of Kelly in 2023, the production lines have not been properly operational since."

This proof indicates that the "cannibalization" phenomenon, where two products eat into each other's market share, occurred between Kelly and Terra, as HiteJinro had feared. Immediately after Kelly's release, products released to the market saw short-lived popularity and temporary sales increases, but that effect did not last two years.

Terra, launched in March 2019, exceeded a cumulative sales volume of 5 billion bottles over six years, with an annual sales volume at around 830 million bottles. In contrast, Kelly has only sold 600 million bottles in the two years since its launch in March 2023.

Experts predicted that there would be no significant improvement in HiteJinro's beer sales even after the first quarter of this year. According to the consensus from IBK Securities, HiteJinro's consolidated beer sales are expected to decline by 1.6% from last year to about 810 billion won.

In terms of consolidated revenue, HiteJinro's beer division reported a loss in 2023 due to changes in marketing expenses but is expected to temporarily return to profit in 2024, indicating an unstable revenue structure. While reducing marketing costs could yield profits, it implies that the company's market share and recognition are in jeopardy.

In contrast, during this period, HiteJinro achieved remarkable results in its soju business. Existing products such as "Chamisu Original" and "Chamisu Fresh" have solidified their position as the market leader based on high brand recognition. HiteJinro's market share in the domestic soju market is estimated to exceed 60%.

The share of beer sales in HiteJinro decreased from 32.4% in 2023 to 31.2% last year, a drop of 1.2 percentage points. In contrast, the share of soju volume increased from 54.7% to 55.8%, an increase of 1.1 percentage points during the same period.

As the phenomenon of money earned from soju leaking from the beer sector becomes increasingly evident, there is growing internal discontent over the lack of synergy between the soju and beer divisions.

Kim In-kyu, CEO of HiteJinro, has stated that since taking office in 2011, he would reclaim the number one position in beer that had been lost to OB. To do this, he merged the once-leading soju sales network with the beer sales network, which had fallen to second place. He also reiterated during the 2023 Kelly announcement that "I will definitely achieve regaining the number one position in the domestic beer market."

In reality, however, progress has taken steps backward. HiteJinro has not surpassed OB even once since CEO Kim took office. Kim's term ends in March next year.

A member of the Korea Alcohol Wholesale Association said, "In the current poor liquor market, it is almost unheard of for most establishments to buy a single company's branded beer in double quantities, which has led to HiteJinro's two beers competing against each other," adding, "From the field's perspective, there seems to be no business synergy between soju and beer."


28 March, 2025