[Company Insight] HiteJinro, As Expected Terra Leads... Drives Q1 Performance Improvement

Increase in Shipment Volume After Social Distancing Lifted
Promotion of Soju Globalization... Burden of Rising Raw Material and Grain Prices

[Asia Economy Reporter Hyungsoo Park] Established in 1924, HiteJinro is a comprehensive liquor sales company. As of the end of March this year, it has 22 subsidiaries. It sells beer, soju, bottled water, and more. Its main products include 'Cheongjeong Lager - Terra,' 'Chamisul,' and 'Jinro.'

HiteJinro pioneered the domestic sparkling beer market by launching 'Filite' in 2017. Reflecting diverse consumer demands, it successively released Filite Fresh, Filite Weizen, Filite Radler, and Filite Radler Grapefruit. In 2019, it launched the lager beer Terra. Terra gained popularity by selling 100 million bottles within 101 days of its launch. By March this year, cumulative sales exceeded 2.7 billion bottles.

In April 2019, Jinro achieved sales of 1 billion bottles just 34 months after its launch. Jinro has grown into a representative soju brand alongside Chamisul, selling at a rate of 11 bottles per second. HiteJinro actively utilizes the toad character to increase Jinro's brand awareness. By expanding the diverse character universe of the Jinro Toad, it leads trends and strengthens fandom. The country's first liquor character shop, 'Dukkeop Sanghoe,' started in August 2020 in Seongsu-dong, Seoul, and is operating nationwide in a relay format.

Last year, HiteJinro recorded sales of 2.2029 trillion KRW and an operating profit of 174.1 billion KRW. Compared to the same period the previous year, sales decreased by 2.4%, and operating profit fell by 12.3%. Although performance was sluggish due to the impact of COVID-19, sales and profits have been increasing again this year.

In the first quarter of this year, sales reached 583.7 billion KRW, and operating profit was 58.1 billion KRW, up 9.1% and 9.8% respectively from the same period last year. In the beer segment, imported beer sales decreased by nearly 20% year-on-year due to reduced market demand, but Terra led performance improvement. As Terra increased its market share in the domestic beer market, domestic beer sales rose by 9% year-on-year. Overall beer sales increased by 5%. In the soju segment, sales of both existing brands and Jinro increased, resulting in a 12% rise in domestic soju sales. Although the export segment was somewhat sluggish, total soju sales increased by 10%.

The cost of sales ratio rose by 1 percentage point in the first quarter, and labor costs increased by 19%. Advertising expenses decreased by 21% compared to the same period last year, resulting in an operating profit margin of 9.9%, up 0.1 percentage points.

Following the reopening (resumption of economic activities), deferred demand for outdoor activities and dining out has increased liquor sales. Since last month, with the easing of COVID-19 quarantine measures, Terra's shipments to the entertainment market have surged. From April 18 to May 13, a one-month period, Terra's shipments to the entertainment market increased by 95% compared to the one-month period from March 18 to April 13 before the social distancing measures were lifted. Compared to the same period in 2020, the early stage of the COVID-19 crisis, sales increased by 9%.

Along with sales recovery in the domestic market, HiteJinro is promoting the 'globalization of soju.' Last year, the volume of soju exported to Europe increased by 44% compared to the previous year. To expand Jinro's brand awareness, cultural events targeting local Europeans are being supported. Until July 30, JIN Entertainment is sponsoring the club event 'Korean Night,' which tours and hosts events mainly in major German cities. HiteJinro sells Chamisul Fresh and the Aseul series inside clubs. It is also increasing its presence in local supermarket chains in Germany. In the UK, it is conducting food pairing events in collaboration with local restaurants.

Although sales are expected to increase this year, opinions differ regarding profit direction. KB Securities researcher Sunhwa Lee explained, "Focusing on Terra, which is strong in the entertainment market, we will expand beer market share and increase soju market share in provinces based on Chamisul's high brand awareness," adding, "Even if marketing costs increase to achieve target market share, due to the nature of the industry, a high operating leverage effect that can offset this is expected."

On the other hand, the recent rise in raw material and grain prices in the international market is cited as a burden. Cape Investment & Securities researcher Hyemi Kim analyzed, "The cost burden continues to expand," and "Considering the possibility of fierce marketing competition as the peak season approaches, the improvement in profit margin may fall short of market expectations."