Struggling OB Beer Sales... Hite Jinro Soars with Strong 'Home Alcohol' Sales

Decline in Company Dinner Demand and COVID-19... Shrinking Liquor Market
OB Beer Faces Worsening Sales Slump... Suspension of Production at Cheongju Plant
HiteJinro Expected to Return to Profit with Increased Sales of Home-use Products

[Asia Economy Reporter Choi Saeng-hye] Following the establishment of the 52-hour workweek and the decline in demand for company dinners, the spread of the novel coronavirus infection (COVID-19) is causing mixed fortunes for liquor companies. As the overall liquor market size shrinks, OB Beer, the No.1 player in the beer industry, is experiencing worsening business performance, whereas HiteJinro is expected to turn a profit this year as the sales proportion of home-use soju and beer rather increases.

According to the related industry on the 7th, the overall liquor market size decreased by 2.8% last year due to the establishment of the 52-hour workweek and the decline in demand for company dinners. The industry expects the decline in the liquor market to be even greater this year due to the impact of COVID-19. According to the liquor wholesale industry, since the outbreak of COVID-19 in January and February, the domestic distribution volume of beer and soju has decreased by an average of more than 30% compared to the previous year.

However, sales fluctuations in the liquor market vary greatly by company. According to Samsung Securities, Lotte Liquor recorded poor performance since the second half of last year due to the decline in beer sales and the resulting fixed cost burden, as well as the boycott movement against Japanese products affecting even soju products. Also, OB Beer, the No.1 beer company, saw sales decline by about 8% after the price increase in March last year following the aging of the Cass beer brand, and sales are estimated to have dropped by about 30% so far due to the impact of COVID-19. From the 6th, production of products at the Cheongju plant will be suspended for four weeks. This is not a full shutdown of the entire plant; operations related to equipment and shipping will be maintained, and only product manufacturing will be halted.

There are two major liquor companies with factories in Chungbuk: OB Beer and Lotte Liquor. Considering that Lotte Liquor’s beer market share is around 5%, the beer production volume in the Chungbuk region, which accounts for 33% of the total domestic production, is estimated to be largely OB Beer’s output, so this production suspension is expected to deal a significant blow to performance. The Cheongju plant is responsible for about 25% of OB Beer’s total production volume. An industry insider said, "It is very unusual for a beer plant to suspend production for a month ahead of the peak season."

Park Sang-jun, a researcher at Kiwoom Securities, explained, "It is difficult to explain the production suspension solely by the decline in beer demand due to the spread of COVID-19," adding, "Considering that the beer market size shrank by about 5-7% in the first quarter, it proves that OB Beer’s market share and profitability levels have sharply declined." He further added, "It is estimated that OB Beer’s aggressive promotional activities will become increasingly difficult in the future."

On the other hand, despite the decrease in the liquor market size due to COVID-19, HiteJinro has not experienced significant changes in liquor sales. Although the sales proportion of entertainment venues, where a lot of promotional expenses are invested, dropped from 50% to 43%, the sales proportion of home-use products, which require relatively less promotional expenses, rose from 50% to 57%. In the case of Terra, after recording sales of 2.8 million boxes in January, sales slightly decreased to 2.1 million boxes in February due to the impact of COVID-19, but sales last month, when social distancing measures were fully implemented, recorded over 2 million boxes, showing resilience. Jinro Is Back also recorded sales of 1.3 million boxes in January, 1 million in February, and over 1 million boxes last month.

According to HiteJinro, the operating rate of the Masan plant, which was 37% in 2018, is expected to exceed 50% this year due to equipment conversion. Accordingly, a turnaround to profitability in the first quarter is also expected. According to estimates by HiteJinro and Samsung Securities, HiteJinro’s first-quarter sales are expected to rise 20.3% year-on-year to 508.8 billion KRW. Operating profit is estimated to reach 35.1 billion KRW, turning to a profit.

This content was produced with the assistance of AI translation services.