Government Targets Prices on All Fronts... Will Beer Prices Drop After Soju?

Beer and Makgeolli Price Linkage System Abolition Law Passed Today
HiteJinro to Preemptively Lower Soju Shipment Price from 22nd
Chicken Industry Weighs Price Increase... "Cannot Raise Before General Election"

As the government embarks on a large-scale effort to curb inflation ahead of next year's general elections, the distribution industry is facing deep concerns. In particular, the liquor industry is under pressure to lower prices as taxes on beer, following those on soju?a popular alcoholic beverage among the working class?are being adjusted. Meanwhile, the chicken industry, which has been flooded with price increase demands from franchise owners due to soaring delivery fees and raw material costs, has entered a period of cautious timing regarding price hikes.

Will Beer Prices Drop Following Soju?

On the 11th, major beer products from OB Beer, such as Cass and Hanmac, were displayed at Yangjae Hanaro Mart in Seoul with an average factory shipment price increase of 6.9%. Photo by Jinhyung Kang aymsdream@

According to the National Assembly's legislative information system on the 21st, a bill to abolish the ‘inflation-linked system’ applied to taxes on beer and takju (traditional Korean rice wine) is expected to pass in the plenary session held that afternoon. The amendment sets the tax rates for takju and beer at 44,400 KRW and 885,700 KRW per kilogram, respectively, instead of adjusting them annually based on consumer price inflation. It also allows the presidential decree to adjust these rates within a 30% range, considering liquor price stability. Additionally, the bill includes a three-year extension until December 31, 2026, of the 80% tax reduction on draft beer, which was set to expire at the end of this year. Originally, this law was included in this year's tax reform bill following last year's sharp rise in beer prices and is designated as a budget-related bill, so it is expected to pass the National Assembly along with next year's budget bill on the same day.

Accordingly, government pressure to lower beer prices is expected to intensify. Earlier, the government introduced a standard sales ratio for domestic distilled liquor starting next year, lowering taxes to curb the liquor industry's trend of raising soju prices. On this day, HiteJinro announced it would proactively reduce the ex-factory prices of its soju products ‘Chamisul’ and ‘Jinro’ starting from shipments on the 22nd. Initially, HiteJinro planned to lower these prices by 10.6% from January 1 next year, but it advanced the timing to support the government's inflation stabilization efforts and ease consumer burdens. Lotte Chilsung also announced it would reduce the ex-factory prices of soju products such as ‘Cheoeumcheoreom’ and ‘Saero’ by 4.5% and 2.7%, respectively.

However, the liquor industry is cautious about lowering beer prices. An industry insider explained, “With the abolition of the inflation-linked system on the specific tax, the price increase factor due to tax hikes will disappear, so it is expected to help control price increases.” However, they added, “Since the tax increases that used to rise regularly each year will now be applied flexibly, and this does not affect existing internal cost factors, the possibility of price reductions due to the abolition of the inflation-linked system is not high.”

Franchise Owners Pressure for Chicken Price Hikes

On the 2nd, during lunchtime in a food alley in Seoul where 'Social Distancing Level 2.5' is in effect, a citizen is walking while holding takeout food in hand. Photo by Hyunmin Kim kimhyun81@

The chicken franchise industry, regarded as a ‘national snack,’ has been weighing the timing of price increases amid a flood of demands from franchise owners citing rising delivery fees and raw material costs this year. However, due to the government's inflation stabilization stance, they have been unable to raise chicken prices.

At the ‘2023 Second Half Meeting’ of the nationwide franchise owners’ council recently held by bhc Chicken, voices calling for chicken price increases to improve franchise profitability were heard. One franchise owner urged, “If the price adjustment is within the generally established range of chicken prices, it will not only gain consumer understanding but also greatly help improve franchise profitability. The price adjustments we have requested several times must now be realized.”

bhc Chicken is currently considering whether to raise prices in response to franchise owners' requests. A bhc Chicken official said, “Requests to raise prices, considering the difficulties of franchise operations, have been steadily accumulating since early this year,” adding, “Next year, we will spare no effort in supporting franchise headquarters to increase sales and improve profitability by expanding the customer base across various age groups.” However, other chicken companies have drawn a line, saying there will be no ‘domino effect’ price hikes. A representative from a chicken franchise said, “There will be no price increases until next year’s general elections.”