[Why&Next] Did We Trust the 'Pyeonmaekjok' Too Much... The 'Fall' of Jeju Beer

First Listed Craft Beer Company Sells Management Rights Amid Profit Decline
Operating Loss of 11 Billion KRW Last Year...Accumulated Deficit of 86.7 Billion KRW
Sale of Leading Company Negatively Impacts Entire Craft Beer Industry

Jeju Beer, the first craft beer company listed on KOSDAQ, is being sold three years after its IPO. At the time of listing, it attracted attention for its differentiated products and business model, emphasizing Jeju regional identity, and was expected to bring a fresh breeze to the domestic liquor industry. However, focusing on quantitative growth, it failed to break free from the convenience store beer stereotype, continuously recording losses, leading to a change in ownership.

Moon Hyuk-ki, CEO of Jeju Beer.

Management Rights Sold Three Years After Listing... CEO Moon Hyuk-gi's Craft Beer Experiment Ends in Futility

According to the Financial Supervisory Service's electronic disclosure system on the 23rd, Jeju Beer is in a state of capital erosion, with total equity less than capital stock. As of the end of last year, Jeju Beer’s capital surplus was only 766 million KRW, while accumulated deficit reached 86.7 billion KRW. Typically, companies generate profits annually and accumulate retained earnings after dividends, but Jeju Beer has recorded net losses for several years, with negative retained earnings of 50.1 billion KRW in 2021, 74.2 billion KRW in 2022, and 86.7 billion KRW last year.

Jeju Beer disclosed estimated performance through its IPO prospectus in May 2021, projecting sales of 114.7 billion KRW and operating profit of 21.9 billion KRW for 2023. However, actual results diverged significantly. Last year, Jeju Beer’s sales were 22.4 billion KRW, only 19.1% of the estimate, and it recorded an operating loss of 11 billion KRW, never escaping the red.

As losses continued and financial conditions worsened, Jeju Beer announced on the 19th that its largest shareholder, MBH Holdings (14.62%), and CEO Moon Hyuk-gi (0.17%) would sell 8.64 million shares and management rights to Double HM at 1,175 KRW per share, totaling 10.156 billion KRW. Double HM, the acquirer, is an automobile repair and parts distribution company based in Seongdong-gu, Seoul, unrelated to the beer business, with sales of 2.6 billion KRW and net profit of 323 million KRW last year.

Under the contract, Double HM paid 1 billion KRW as a deposit (10% of the purchase price) to MBH Holdings, with 5.1 billion KRW due on May 15 and the remaining 4.1 billion KRW to be paid by May 7, the day before the extraordinary shareholders' meeting. Management rights of Jeju Beer will transfer to Double HM at the extraordinary shareholders' meeting upon payment of the balance and appointment of directors and auditors designated by Double HM.

Jeju Beer was the first domestic craft beer company to list on the KOSDAQ market of the Korea Exchange in May 2021. It debuted on the stock market under the so-called 'Tesla Requirement' (special listing for unprofitable companies), introduced in 2017 to give opportunities to loss-making companies, attracting attention. However, operating losses continued after listing, and with the stock price falling, management rights were eventually transferred.

However, this sale will provide CEO Moon with a large sum of money. With a 54.5% stake in MBH Holdings, the largest shareholder, once the sale of shares in MBH Holdings and Jeju Beer is completed, Moon will receive over 5.5 billion KRW in cash.

How Did Jeju Beer Fall?

Jeju Beer 'Jeju Wit Ale'

Considering Jeju Beer’s symbolic status as the industry’s first listed company, this sale is expected to further expand the market’s negative perception of craft beer. Seven Brau Beer, the second largest in the industry, also listed on the KONEX market in January aiming for a transfer listing to KOSDAQ next year, but its sales last year dropped 62.1% from the previous year (32.7 billion KRW) to 12.4 billion KRW, with operating losses of 6.2 billion KRW, indicating a thorny road ahead.

Industry insiders evaluate that Jeju Beer, once a leading domestic craft beer company, made a misstep by focusing on expanding size by actively riding the existing convenience store market trend of ‘4 cans for 10,000 KRW’ rather than creating new trends and leading the market. Jeju Beer once stirred the industry with products based on Jeju regionality such as ‘Jeju Wit Ale’ and ‘Jeju Pelong Ale,’ but ultimately failed to develop products and business models competitive beyond convenience store shelves.

Craft beer, traditionally consumed mainly through specialized craft beer shops and pubs, experienced a boom during the COVID-19 pandemic as alcohol distribution was effectively limited to home channels, leading to new sales channels in marts and convenience stores. However, the convenience store channel limited craft beer’s growth and caused loss of identity. Due to the marketing policy of ‘4 cans for 11,000?12,000 KRW’ in convenience stores, the upper limit of supply prices was set, making it difficult to produce high-quality beers that could showcase each company’s uniqueness. Instead, low-flavor ‘collaboration beers’ that met supply price requirements flooded the market. Focusing only on undistinguished variety blurred the differences from mainstream beers and caused loss of competitiveness against other alcoholic beverages.

Jeju Beer in the Hands of an Auto Parts Company: What Lies Ahead?

Along with the management rights sale, Jeju Beer announced plans to raise operating funds. Double HM plans to raise acquisition funds through a 10 billion KRW rights offering by the end of May, followed by issuing convertible bonds (CB) and bonds with warrants (BW) worth 20 billion KRW each. However, skepticism is growing in the market. The acquirer is a small company unrelated to the beer business, and market interest in craft beer continues to wane. Along with consumer neglect and dependence on convenience store channels, some companies have shifted from beer production facilities to producing highballs under the pretext of responding to trends.

To overcome the current crisis and achieve healthy growth, craft beer including Jeju Beer must first establish a clear identity rather than merely focusing on expanding size. Craft beer is produced in small-scale breweries operated with independent capital, using original and distinctive methods. Unlike pale and light lagers produced by large liquor companies, craft beer’s identity lies in making beers with unique styles per brewery, freely using basic ingredients such as malt, hops, and yeast, as well as various fruits and herbs.

An industry insider said, “Craft beer is not an area that can immediately grow in scale to influence the overall beer market share, so continuing to consume image through collaborations like now will hardly create momentum. Breweries should approach business by leveraging diversity, combining brewing with pub operations and tourism, to slowly but firmly root themselves in each region.”