[Why&Next] OB Beer Acquires Jeju Soju... Will It Become a 'Megi' in the Soju Market?

OB Beer Enters Soju Market with Jeju Soju
Heightened Expectations for Three-Way Competition with HiteJinro and Lotte Chilsung
Short-Term Market Shift Unlikely Given Jeju Soju's Scale and Influence

OB Beer, the No. 1 beer company in Korea, is acquiring Jeju Soju from Shinsegae L&B. There is interest in whether this will affect the soju market landscape, which is currently dominated by HiteJinro and Lotte Chilsung Beverage. Considering the scale and status of Jeju Soju, the consensus is that it will not be easy for OB Beer to change the current solid market structure in the short term through new product launches. OB Beer also plans to focus on overseas markets centered on existing export products such as fruit soju for the time being. However, since a major liquor company now holds the rare soju manufacturing license, it is expected that various attempts will be made in the long term to shake up the soju market.

OB Beer Acquires Jeju Soju... Shinsegae Ends Years of Loss-Making Business

According to the liquor industry on the 12th, OB Beer, a subsidiary of AB InBev, the world's largest beer company, is merging with Jeju Soju operated by Shinsegae Group's liquor affiliate Shinsegae L&B. OB Beer will take over Jeju Soju's production site, facilities, and groundwater usage rights to enter the soju business. The specific acquisition amount has not been disclosed.

Jeju Soju, a local Jeju company established in 2011, entered the soju market in 2014 with the launch of 'Olle Soju.' In 2016, Shinsegae Group Chairman Chung Yong-jin actively got involved, and it was acquired by E-Mart. The following year, Olle Soju was rebranded and relaunched as 'Pureunbam.' Pureunbam sold 3 million bottles within four months of its launch, showing a decent initial performance, but it lost consumer interest due to the strong market dominance of existing leading products like 'Chamisul' and 'Chum Churum.'

Jeju Soju's 'Pureunbam'

Eventually, Jeju Soju's operating losses increased from 1.9 billion KRW in 2016, the first year after E-Mart's acquisition, to 10.6 billion KRW in 2020, leading to a capital erosion state. To manage the business more efficiently by integrating similar business areas, the company decided to merge Jeju Soju into Shinsegae L&B in March 2021. After the acquisition, Shinsegae L&B halted Pureunbam production and withdrew from the domestic market, continuing the business by outsourcing fruit soju production at Jeju Soju's factory under an Original Design Manufacturer (ODM) model for export to Southeast Asia and other regions.

However, no turnaround was achieved, and discussions on business restructuring resurfaced. In June, Shinsegae L&B spun off its Jeju business division to establish Jeju Soju as a new company. The liquor manufacturing-related business was transferred to Jeju Soju to focus on liquor import-export and wholesale-retail businesses for improved efficiency. Shinsegae L&B explained that the split aimed to enhance the expertise of existing businesses by separating all businesses related to liquor production and manufacturing. At the time, the industry viewed Shinsegae L&B's spin-off of Jeju Soju as a clear external signal of focusing on its existing wine business and as a precursor to selling the manufacturing-centered Jeju Soju. Indeed, about two months after the spin-off, a new owner was found.

Will OB Beer Shake Up the Soju Market? "Difficult to Impact Market Landscape in Short Term"

As the largest domestic beer manufacturer enters the soju business, some predict that the domestic soju market will be reorganized into a three-way competition with HiteJinro and Lotte Chilsung Beverage. However, it seems difficult for this acquisition to affect the soju market landscape in the short term due to fundamental differences between the soju and beer markets.

HiteJinro 'Chamisul Fresh'

Generally, soju's main sales channels are restaurants and bars, whereas beer consumption is higher in the home market. This is considered a significant factor that helped HiteJinro smoothly enter the beer market. Based on the strong competitiveness of its soju brands, HiteJinro conducted 'so-maek' (soju and beer mixed drink) sales and marketing, making it relatively easy to expose its beer in the entertainment market, and the consumer experience and popularity gained there extended to the home market.

On the other hand, it is realistically difficult for OB Beer to employ such sales strategies. An industry insider explained, "Although OB Beer and HiteJinro each hold the No. 1 position in the beer and soju markets respectively, there is a decisive difference in that HiteJinro's influence in the soju market is overwhelmingly stronger than OB Beer's influence in the beer market."

Above all, it is also evaluated that OB Beer will find it difficult to launch a game-changing soju product in a short period. Jeju Soju's production facilities are not at a level to compete with existing leading players, and brands like Pureunbam introduced by Jeju Soju were not influential in the domestic market. Additionally, the manufacturing license requires production to be based in Jeju, which means additional logistics costs must be borne to develop it into a nationwide soju brand. Establishing a bottling plant for smooth distribution may also be necessary. Prior to that, an additional container filling license must be obtained.

OB Beer’s flagship brand 'Cass'

OB Beer seems aware of this and plans to position Jeju Soju as a strategic partner for the global expansion of its flagship beer brand 'Cass' rather than aiming to change the domestic soju market landscape immediately. With growing demand for Korean products, the plan is to expand the portfolio with soju to respond to the global market with a more diverse range of alcoholic beverages. Since Jeju Soju has focused on exports, it is expected that OB Beer can expand Cass exports by utilizing Jeju Soju's existing network. Gu Ja-beom, Senior Vice President of OB Beer, said, "OB Beer is committed to providing the best beer experience to Korean consumers and will focus on expanding Cass's export network through this acquisition."

For OB Beer, securing the rare soju manufacturing license, which is no longer newly issued, is positive as it opens up various future opportunities. An industry insider said, "(OB Beer) may highlight the monopolistic nature of the current soju market and push for regulatory improvements, showing moves to change the rules of the game itself." Senior Vice President Gu's remark that "this acquisition will open new possibilities as part of OB Beer's long-term growth strategy" also supports this outlook.