Growth Wings from Liquor Tax Law Revision... 10-Fold Growth in 7 Years [Craft Beer Economics①]

Domestic Craft Beer Sales Reach 152 Billion KRW Last Year... 10-Fold Increase in 7 Years
Number of Craft Beer Companies Increased from 54 in 2014 to 154 Early This Year
Tax System Changed to Specific Tax in 2020 Due to Liquor Tax Law Revision
Price Reduction Potential Created for Small-Batch, Diverse Craft Beers

[Asia Economy Reporter Eunmo Koo] The season that makes you crave a cold glass of beer has returned. With the lifting of social distancing and other quarantine measures, the entertainment market, which had been stagnant for the past two years, is bustling again, raising expectations in the craft beer industry. The craft beer sector, which boasts a variety of flavors and aromas, has grown nearly tenfold in the past seven years. Since 2020, amendments to the liquor tax law have also provided wings to secure price competitiveness.

According to the Korea Craft Beer Association on the 16th, last year, the sales of domestic craft beer companies amounted to 152 billion KRW. This is an increase of nearly 30% compared to the previous year (118 billion KRW) and marks nearly a tenfold growth in seven years since 2014 (16.4 billion KRW). The domestic craft beer market first entered the 10 billion KRW sales range in 2014 and doubled in size to 31.1 billion KRW in 2016. It continued steady growth with 43.3 billion KRW in 2017, 63.3 billion KRW in 2018, and 80 billion KRW in 2019, surpassing 100 billion KRW in 2020.

Domestic Craft Beer Sales Trends (Source: Korea Craft Beer Association)

The number of companies producing craft beer has also steadily increased. The number of craft beer manufacturing licenses, which was around 54 in 2014, rose to 163 as of January this year. Growth began when external distribution of small-scale brewery beers was permitted in 2014, increasing to 81 in 2016 when bottling sales by small-scale beer producers were allowed, and jumped to 126 in 2018 when retail distribution was permitted. In 2020, when the liquor tax system changed from a specific tax to an ad valorem tax, the number increased to 154.

Craft beer refers to beer made in small-scale breweries using their own manufacturing methods, translated from the American Brewers Association (ABA) definition of ‘Craft Beer.’ According to the ABA, craft beer is beer produced in small breweries operated with independent capital, not controlled by large beer or beverage companies, and made in an original and distinctive way.

Trends of Domestic Craft Beer Companies (Source: Korea Craft Beer Association)

The domestic craft beer market, which began to sprout in the 2010s with the gradual introduction of overseas craft beers, reached a turning point in growth in 2020 when the liquor tax law was amended to change the taxation method from a specific tax to an ad valorem tax. In the past, beer was considered a luxury item as it was brewed using food crops, and the liquor tax rate was as high as 150%. Although the tax rate gradually decreased, even after 2007, 72% of the cost was taxed, making it difficult for craft beers, which produce small quantities of various types, to be price competitive.

Then, in June 2019, the government announced an amendment to the liquor tax law, and from January 2020, the tax system was restructured to an ad valorem tax method charging 830.3 KRW per liter (ℓ). This lowered the manufacturing cost of craft beer and created a background for accelerating the growth of the craft beer market. The specific tax, which taxes based on the price of goods, favors large companies that can lower costs through mass production, but under the ad valorem tax system, which taxes based on volume, craft beers produced in small quantities have room to reduce prices.

Jeju Beer 'Jeju Pelong Ale'

The craft beer industry, which has prepared a stepping stone for a leap forward, is recently making another growth foundation by going public (IPO) to raise operating funds needed for expanding production facilities and diversifying products. In May last year, Jeju Beer, the number one domestic craft beer company, was listed on the KOSDAQ market as a technology-specialized company. Jeju Beer recorded sales of 28.8 billion KRW last year, leading with its own brand characterized by Jeju elements such as Jeju-sourced raw materials (citrus peel and Hallabong). Besides Jeju Beer, companies preparing for listing include Sevenbrau, famous for ‘Gompyo Beer,’ as well as Kabrew and Amazing Brewing Company.