[Company Exploration] Jeju Maekju, No.1 Craft Beer, Challenges Lager... Striving for Profit Turnaround

The season has returned when a refreshing sip of beer washes away the fatigue and heat of the day. Since last month, with the lifting of COVID-19 preventive measures such as social distancing, entertainment venues like restaurants and bars have become bustling again. As group drinking gatherings increase, beer shipments have also surged significantly. Beer companies are actively engaged in marketing to expand customer touchpoints. Alongside the recovery of the entertainment beer market, which had been stagnant for the past two years, there is growing anticipation for the growth of craft beer that stimulates consumers' palates with diverse flavors. Asia Economy analyzed HiteJinro, a veteran in the domestic beer market, and Jeju Beer, an emerging player.

[Asia Economy Reporter Park So-yeon] Jeju Beer is the number one craft beer company in South Korea. It was listed on the KOSDAQ market as a technology-specialized company in May last year. Unlike other craft beer companies that mainly sell private brand (PB) products in collaboration with distributors such as convenience stores, Jeju Beer generates more than 80% of its sales from its own brand. It features elements characteristic of Jeju, such as using Jeju-sourced raw materials (tangerine peel, Hallabong). Starting with Jeju Wit Ale launched in 2017, it has released various products tailored to different tastes, including Jeju Pelong Ale, Jeju Slice, and Jeju Lager. It has a technical partnership with the overseas craft beer company Brooklyn Brewery.

As of 2021, sales from beer products such as Jeju Wit Ale (27.7 billion KRW) accounted for 96% of total sales (28.8 billion KRW). The remainder comes from other revenues such as brewery tours. Beer production capacity increased from 9,632 kL in 2020 to 10,735 kL in 2021. As the leading company in craft beer market share, it shows steady research and development achievements. Following the development of new fruit beer products in 2019, it developed dark ale and coffee beer in 2021 and introduced them to the market. This year, it launched a lager-type beer suited to the characteristics of the Jeju Beer brewery. It is currently researching and developing sour beer characterized by a tart taste.

While product identity centered on Jeju and R&D achievements are strengths, linking these to a market-appropriate profit structure remains a challenge. Since its establishment in 2015, Jeju Beer has yet to escape losses. According to the Financial Supervisory Service’s electronic disclosure system, Jeju Beer posted operating losses of about 4 to 9 billion KRW annually from 2017 to 2021. Operating losses, which were around 5 billion KRW in 2017, recorded 6.4 billion KRW in 2018, 9.5 billion KRW in 2019, 4.4 billion KRW in 2020, and 7.2 billion KRW in 2021, accumulating to a total loss of 32.5 billion KRW over the past five years.

After listing, the deficit widened, and the stock price halved. Reports predicting a turnaround to profitability were abundant before last year’s listing, but last year’s performance fell short of market expectations. Jeju Beer’s initial public offering price in May last year was 3,200 KRW, and the stock price rose to 6,040 KRW on the listing day. However, one year after listing, the stock price has dropped below the IPO price to the 2,000 KRW range. This year, amid the stock price decline, the Chief Financial Officer (CFO) exercised stock options and sold shares at more than five times the acquisition cost, which sparked criticism for impropriety.

To escape losses, Jeju Beer has been steadily expanding its product lineup by introducing lager beers, which dominate the domestic beer market. The domestic beer market is dominated by large companies such as OB Beer, HiteJinro, and Lotte Chilsung Beverage, which mainly produce lager beers, holding over 90% market share. Jeju Beer has challenged this market. Following the new product ‘Jeju Lager Project 001,’ it plans to launch two additional types of lager beer. However, given the presence of veteran lager brands like Cass and Terra, expanding market share may not be as easy as expected.

Meanwhile, to discover new growth engines, Jeju Beer established a venture capital (VC) subsidiary called Caspian Capital in June last year. It is expected to proactively identify companies closely related to Jeju Beer’s business and seek strategic collaboration and investment. At the end of last year, it conducted a paid-in capital increase of 9.5 billion KRW and appointed Nam Dong-woo, former director of SBI Investment, as the new CEO. CEO Nam discovered Jeju Beer during his tenure at SBI Investment and helped its growth process. The largest shareholder of Jeju Beer is MBH Holdings, owned by CEO Moon Hyuk-ki and his father Moon Sung-geun, holding 65.81% of shares. The total shares held by CEO Moon Hyuk-ki and related parties amount to 22.44%. CEO Moon said, “Turning profitable is a major challenge for Jeju Beer, and we will show good results through portfolio and new businesses.”