Kooksoondang Increases Exports and Prices... Makgeolli Also Goes 'Kreu~'

Amid growing concerns about inflation, domestic liquor companies are raising prices on their main products. HiteJinro will increase the shipment price of soju products by 7.9% starting from the 23rd. Considering the rise in raw material costs, logistics expenses, and bottle handling fees, HiteJinro raised the shipment price of soju products for the first time in about three years. Daehan Distillers, which sells ethanol, the key raw material for soju, recently raised ethanol prices by 7.8% for the first time in 10 years. Following HiteJinro, soju companies are expected to raise prices one after another. Not only soju but also Makgeolli prices have increased. Earlier, Kooksoondang raised the prices of its main products by 9.9?25.0% at the end of last year. Asia Economy reviews Muhak and Kooksoondang’s business structures and financial conditions and examines their growth potential.

[Asia Economy Reporter Park Hyungsoo] Kooksoondang, which suffered a crisis by recording losses for five consecutive years from 2015 to 2019, has maintained profitable management since CEO Bae Sangmin took office in March 2020. With increasing overseas exports and a price hike for Makgeolli at the end of last year, the performance outlook for this year is bright.

Kooksoondang is a traditional liquor manufacturer producing Gangjang Baekseju, Baekseju, Myeongjak series, Yedam, Kooksoondang Rice Makgeolli, Kooksoondang Raw Makgeolli, Daebak, and others. It was established as Baehan Industry in February 1983 and changed its name to Kooksoondang in December 1992. It has seven major subsidiaries including Agricultural Corporation Kooksoondang Yeoju Myeongju Co., Agricultural Corporation Jayeon Geudaero Agriculture Co., G&Tech Venture Investment Co., Hohyeonghoje, Beijing Baekse Sangmu Co., France Baekseju, and Agricultural Corporation Farm Up Co.

Sales continued to decline as it failed to launch a new product to replace Baekseju, which gained popularity in the early 2000s and became Kooksoondang’s most popular product. Sales shrank from 77.4 billion KRW in 2015 to 69.7 billion KRW, 65 billion KRW in 2017, 61.5 billion KRW in 2018, and 53.5 billion KRW in 2019. As sales decreased, fixed cost burdens increased and profitability worsened. After recording operating losses for five consecutive years, it faced the risk of being delisted from the stock market.

Bae Sangmin, CEO and grandson of Kooksoondang founder the late Bae Sangmyeon, took office with the challenge of improving profitability. The situation was not easy. Due to the spread of COVID-19 and social distancing measures, sales of Baekseju Village’s directly operated restaurants and other product segments declined. In a situation where increasing sales was difficult, the company reduced labor and sales activity costs, raising the operating profit margin from 5.2% the previous year to 8.7%. Based on cost control, the cost of goods sold ratio and selling and administrative expense ratio decreased from 64.6% and 46.0% in 2015 to 54.8% and 36.6% last year, respectively. Although sales in 2020 decreased by about 1% to 52.9 billion KRW compared to the previous year, operating profit turned positive at 4.6 billion KRW.

As the COVID-19 pandemic continued for a long time last year, demand for alcohol such as 'home drinking' and 'solo drinking' recovered to a certain extent, increasing sales of Makgeolli and Baekseju. Cumulative sales for the third quarter of last year reached 47.9 billion KRW, up 21.4% year-on-year. Operating profit was 7.1 billion KRW, a 95.6% increase. By product, the cumulative sales ratio for the third quarter was 39.1% Makgeolli, 20.4% Baekseju, 15.5% wine, 7.7% other liquors including fruit Makgeolli, 5.5% ceremonial liquors, and 11.8% others.

Although the fourth quarter results of last year have not been announced, the improvement trend is expected to have continued. Kim Jiyoung, a researcher at Kyobo Securities, explained, "Kooksoondang surpassed cumulative exports of 8.3 billion KRW by the third quarter of last year," adding, "It exceeded the annual maximum export amount of 7.9 billion KRW recorded in 2020 in just three quarters."

The export ratio of Kooksoondang’s sales rose from 4.9% in 2011 to 17.4% in the third quarter of last year. By region, the United States, China, and Japan are major consumer countries. To expand overseas, Kooksoondang extended the shelf life based on fermentation control technology. It has consistently launched new products in response to market demand changes. By introducing 100 Billion Probiotic Makgeolli and 100 Billion Prebio Makgeolli, it has established a premium Makgeolli market. It continues activities to raise the value of Korean liquor and promote various Korean traditional liquors in overseas markets. In Japan, the sales proportion of Kooksoondang’s ‘Prebio Makgeolli’ has surged to 40%.

Along with strong overseas exports, profitability improvement is expected to continue due to price increases of main products. The price of rice, a major raw material for Makgeolli, rose about 56% over five years from 35,833 KRW for 20kg of domestic rice in June 2016 to 55,938 KRW in June last year. Kooksoondang raised the supply price of ‘Kooksoondang Rice Makgeolli’ by 25%, from 1,040 KRW to 1,300 KRW in December last year. There is a possibility of raising prices for other products following the main products this year as well. The effect of price increases is expected to be fully reflected in performance starting this year, raising expectations for profit growth.

Kooksoondang’s financial structure is solid. As of the end of the third quarter last year, cash and cash equivalents exceeded 50 billion KRW. Borrowings were only 400 million KRW.

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