Continuing the momentum... Lotte Chilsung speeds up promotion of 'Crush'

Popup Operations, Launch of Canned Products, and More
All-Out Effort to Increase Customer Touchpoints
Soju 'Saero' Boosts Sales
Performance Hinges on Smooth Landing of Crush

Lotte Chilsung Beverage is accelerating efforts to promote its new beer product, 'KRUSH.' After introducing KRUSH in a relatively subdued atmosphere last November to gauge market response, Lotte Chilsung is strengthening its offensive by expanding the product lineup and sales channels early this year and launching a pop-up store. However, given the strong presence of competitors who dominate the market and the overall sluggish beer market, experts predict that a smooth market landing will not be easy.

According to the liquor industry on the 22nd, Lotte Chilsung has been operating a KRUSH beer pop-up store at Lotte Department Store AvenueL Jamsil branch for two weeks from yesterday until March 3. Opened to mark 100 days since the launch, this pop-up store, themed 'KRUSH Avenue,' allows visitors to experience the KRUSH brand by moving along a designated path through various experience zones. Besides the pop-up store, Lotte Chilsung has been busy expanding customer touchpoints by increasing the number of flagship stores, which started near Hongdae last year, to a total of 10 locations in Seoul and the metropolitan area.

Rapid changes are also being made in distribution channels. Considering that soju brand 'Saero' increased its market share among young consumers mainly in the relatively large entertainment channel market, KRUSH was initially launched in two forms: a 500ml bottle and a 20L draft beer keg, distributed mainly to entertainment channels such as bars and restaurants. This month, the product lineup was expanded by introducing canned products in three sizes?355ml, 470ml, and 500ml?targeting home channels such as large supermarkets and convenience stores.

The reason Lotte Chilsung is strongly driving KRUSH promotion early this year is that KRUSH's success holds the key to the overall performance of the liquor business beyond just the beer segment. Last year, Lotte Chilsung's liquor business sales grew 3.8% year-on-year to 803.9 billion KRW from 774.5 billion KRW. However, operating profit declined by 9.0%, from 36.9 billion KRW to 33.6 billion KRW, leaving some disappointment. Lotte Chilsung attributed the decline in liquor business performance to ongoing inflation, a sharp drop in company dinners and year-end parties due to changes in drinking culture, and increased raw material costs such as alcohol and malt.

Even considering the negative external environment disclosed by the company, the beer business's sluggishness was particularly pronounced and significantly impacted the overall liquor business downturn. In fact, last year, Lotte Chilsung's soju business, led by Saero, fought hard with sales increasing 22.4% year-on-year to 338.7 billion KRW, but the beer category, represented by 'Cloud,' saw sales drop 18.0% from 98.4 billion KRW to 80.7 billion KRW. In the home market, KRUSH's share was only 4.6%, trailing behind OB Beer (46.8%), Hite Jinro (28.5%), and even Asahi Breweries (5.1%).

Lotte Chilsung Beverage's new beer product 'Krush (KRUSH)'

With Saero expected to continue its external growth by strengthening operations beyond the metropolitan area to local markets, KRUSH will ultimately need to perform well for Lotte Chilsung to achieve its own guidance this year of a 5.7% increase in sales and a 19.0% improvement in operating profit. The initial momentum shows sales rising from 600 million KRW in November to 1.3 billion KRW in December and 1.8 billion KRW in January, albeit on a small scale. With the launch of canned products, monthly sales of around 4 to 5 billion KRW are expected starting this month.

Additionally, the fact that the Chungju beer factory has been converted into a hybrid production base capable of producing beverages and soju through equipment efficiency improvements is expected to help profitability. Lee Kyung-shin, a researcher at Hi Investment & Securities, said, "Market response to KRUSH will become clearer in the first half of the year," adding, "If KRUSH achieves a smooth market landing, the burden on related businesses will be alleviated, and it could make a meaningful contribution to operating results." He also noted, "The equipment efficiency improvements at the beer factory could reduce fixed cost burdens."

However, the general industry consensus is that it will not be easy for the third-largest player in the conservative domestic liquor market to achieve expected results with a new brand. The influence of the two major existing players, OB Beer and Hite Jinro, which are deeply rooted in the market, is overwhelming, and the beer market is shrinking in both entertainment and home channels amid a clear trend toward diversification of alcoholic beverages.

An industry insider said, "Domestic consumers tend to strongly prefer familiar products when it comes to soju and beer," adding, "Even Hite Jinro's new product 'Kelly,' which has a larger market influence and share than Lotte Chilsung, is showing disappointing results despite massive marketing expenses, so it will realistically be difficult for KRUSH to secure a shelf space above a certain scale and gain consumer choice."