[Why&Next] Shinsegae L&B Splits Jeju Soju Division... Will It Signal a Sale?

Jeju Soju Asset Split Decision
Part of Enhancing Expertise and Business Efficiency
Accelerating Core Business Restructuring Focused on Wine Import and Distribution
Increased Interest in Jeju Soju Sale Status

Shinsegae L&B, a subsidiary of E-Mart responsible for liquor manufacturing, has decided to split its Jeju plant, raising interest in the potential sale of Jeju Soju. However, since the local soju business is struggling and even the retail giant Shinsegae has effectively failed in this venture, the consensus is that the sale will not be an easy task.

Jeju Soju Physical Split... Accelerating Restructuring

According to the Financial Supervisory Service's electronic disclosure system (DART) on the 2nd, Shinsegae L&B announced on the 27th of last month that it will split its Jeju plant and establish a new company, Jeju Soju. As it is a physical split, Shinsegae L&B will hold 100% of Jeju Soju's shares, and the split date is set for the 6th of next month.

Through this split, Shinsegae L&B will focus on liquor import/export and wholesale/retail, transferring the liquor manufacturing business to Jeju Soju and stepping away from it. Shinsegae L&B explained the purpose of this split as "to enhance the expertise of existing businesses and strengthen management efficiency by separating all businesses related to the production and manufacturing of soju and other liquors, and to actively respond to the rapidly growing global market."

The decision to split the two companies by Shinsegae L&B is rooted in the recent deterioration of performance. With the end of the COVID-19 pandemic special demand fueled by the home drinking and solo drinking trends, Shinsegae L&B's sales last year dropped 12.5% year-on-year to 180.6 billion KRW, and operating profit fell 93.8% to 700 million KRW. Net loss also turned to a deficit of 5.3 billion KRW. This year, sales in the first quarter were 40.6 billion KRW, down 13.5% from 46.9 billion KRW in the same period last year, showing continued sluggishness.

As performance declined, discussions on business efficiency naturally surfaced, and the manufacturing business, considered one of the company's most inefficient operations, was prioritized for restructuring. Previously, E-Mart acquired Jeju Soju for 19 billion KRW in 2016 and entered the soju market the following year with the brand "Pureunbam." It is known that Shinsegae Group Chairman Chung Yong-jin personally oversaw the acquisition and product launch, earning the soju the nickname "Chung Yong-jin Soju" and attracting market attention. With the owner directly supporting the business and E-Mart, a major distribution channel, as the parent company, expectations were high.

Pureunbam sold 3 million bottles within the first four months after its launch, showing a promising start. However, due to the strong market dominance of existing leading products like "Chamisul" and "Cheoeumcheoreom," consumer interest did not last long. Jeju Soju's operating losses increased from 1.9 billion KRW in 2016, the year of acquisition, to 10.6 billion KRW in 2020, leading to a capital erosion state. Ultimately, Jeju Soju ceased operations in 2021 and was absorbed and merged into Shinsegae L&B, aiming to manage the business more efficiently by integrating similar operations. However, the merger failed to achieve its purpose, and the companies were separated again after three years.

Jeju Soju's 'Pureunbam'

Focusing on Core Business 'Wine'... Jeju Soju Sale Possibility 'Uncertain'

Through this split, Shinsegae L&B is expected to accelerate restructuring focused on its core business of wine import and distribution rather than new businesses like whiskey and soju manufacturing. In September last year, Shinsegae Group appointed Song Hyun-seok, CEO of Shinsegae Food, to concurrently lead Shinsegae L&B, which handles the group's liquor business. Despite the goal of becoming a comprehensive liquor company, the appointment was intended to guide the company struggling to find its footing between liquor import and manufacturing.

CEO Song chose to focus on the core business of wine instead of new ventures that require significant time and cost. The in-house whiskey new business team, "W Business," was disbanded, suspending whiskey operations temporarily, and the sparkling beer "Let's" was discontinued two years after its launch. Additionally, to strengthen core competitiveness, the company presented a growth vision to develop "Wine & More," a liquor specialty retail store, into a representative lifestyle brand. To this end, a brand curation team was established, and marketing experts were recruited externally to reorganize the brand organization.

Wine & More Yeoksam Centerfield Branch Exterior

This split of Jeju Soju is also part of the ongoing business efficiency efforts. Shinsegae L&B plans to have Jeju Soju discover and invest in new businesses that can create synergy with existing operations, respond quickly to changes in the market environment to increase corporate value, and strengthen competitiveness and improve financial structure through external investment attraction, share sales, business partnerships, and technology cooperation.

However, since Shinsegae L&B has clearly expressed its intention to focus on the wine business externally, there are opinions that this split could be a signal for the sale of Jeju Soju, which is manufacturing-centered. The whiskey new business, initially expected to be the core of the manufacturing business, has failed, and the outlook for the soju business is also not bright.

Currently, Shinsegae L&B produces fruit soju on consignment at the Jeju Soju factory using an Original Design Manufacturer (ODM) method and exports it to Southeast Asia. However, since the raw material for alcohol, tapioca, originates from Southeast Asia, and local production for cost efficiency in labor and logistics is increasing, there are many variables that make stable export business uncertain. Moreover, the domestic business is also facing fierce competition from large companies like Hite Jinro and Lotte Chilsung Beverage, pushing local soju to the brink of extinction.

Therefore, the industry consensus is that selling Jeju Soju will not be as easy as expected. A liquor industry insider said, "The liquor business requires both manufacturing and distribution to create synergy, but even Shinsegae, with its strong distribution network, has effectively failed in this business. It is difficult for local soju companies to survive, and since it is also challenging to build a business focused on exports, even with attractive factors like soju manufacturing licenses and groundwater extraction rights, finding a buyer will not be easy."