K-Beauty Leading Globally... Even Liquor Companies Join the Battle

HiteJinro Group Acquires Cosmetics ODM Company
Shinsegae L&B Expands Brand with Beauty Product Launch
Aiming for Profit Diversification to Overcome Low Growth Trend

The liquor industry has launched a turnaround by leveraging the beauty business. As the liquor industry slows down due to the prolonged economic recession, the strategy is to improve profitability by making the cosmetics business a new growth engine.

Heo Jae-kyun, CEO of Seoyoung ENT (right), and Yoo Si-hwa, CEO of SKS PE, are posing for a commemorative photo after signing a stock purchase agreement last September.

According to the industry on the 2nd, HiteJinro Beverage, a beverage business affiliate of HiteJinro, recently acquired a 57.12% stake in the new technology business investment association 'TP-SBPF Beauty No.1' for 15 billion KRW. Another affiliate, Jinro Soju, also purchased a 38.1% stake in TP-SBPF Beauty No.1 for 10 billion KRW. As a result, the HiteJinro Group now holds a majority stake of 95.2% in the new technology business investment association TP-SBPF Beauty No.1.

A new technology business investment association refers to a fund that invests in venture companies or small and medium-sized enterprises possessing new technologies to support their growth. It collects capital from individuals, corporations, and financial companies, invests in new technology businesses, and then recovers the investment after the companies grow to distribute profits. The industry views HiteJinro Group's acquisition of shares as aimed at securing investment returns through equity participation. In fact, HiteJinro and Jinro Soju stated that the purpose of acquiring shares was to "enhance investment returns through equity participation."

The HiteJinro Group is accelerating investments by identifying the beauty business as a new growth engine to support its liquor business. As part of this, the group's affiliate Seoyoung E&T recently acquired BNB Korea, a cosmetics ODM (Original Design Manufacturer) company. Since its establishment in 2011, BNB Korea has steadily grown, recording sales of 44.2 billion KRW and operating profit of 7 billion KRW last year. It is known to have about 100 small and medium-sized cosmetics brands as clients, including Dalba and Mediheal The Dermatory.

Shinsegae Group's liquor subsidiary Shinsegae L&B's 'Wine & More' is also collaborating with UCL, a cosmetics ODM/OEM (Original Equipment Manufacturer) specialist company, to launch beauty products. Shinsegae L&B, which filed for the trademark 'Wine & More Beauty,' will introduce three beauty products: a mask pack and hand cream containing Pinot Noir from Burgundy, France, and a body scrub, strengthening the connection with its core wine business. The products are expected to be sold mainly through e-commerce platforms such as Gmarket.

The reason liquor companies are entering the cosmetics market is to diversify profitability. Recently, the liquor industry has faced a clear low-growth trend due to the prolonged economic recession, making it urgent to find alternatives. In fact, most food and beverage companies show single-digit annual operating profit margins, and HiteJinro's operating profit margin was only 4.9% last year. There is growing concern that survival will be difficult if they maintain only their existing businesses, prompting efforts to find breakthroughs through business diversification and overseas market expansion.

In particular, HiteJinro, whose main business is soju, has turned its attention to overseas markets such as Southeast Asia due to saturation and stagnation in the domestic market, and seems to highly value the continuous growth potential of K-beauty, which is gaining worldwide popularity. Unlike food and beverage companies, the relatively high operating profit margin of around 10% is also considered an attractive point. In fact, Heo Jae-kyun, CEO of Seoyoung E&T, said, "BNB Korea is a company with outstanding cosmetics manufacturing technology and know-how," adding, "Through this acquisition, Seoyoung E&T will newly leap forward as a company leading lifestyle beyond comprehensive food."

However, in the case of Shinsegae L&B, this can be seen more as an effort to expand the existing liquor specialty store brand Wine & More into a liquor lifestyle brand rather than a full-fledged entry into the cosmetics business. While there is potential to expand the product lineup linked to wine, they are not considering going beyond that. In fact, the Wine & More beauty business will be conducted entirely through consignment production and sales, with Shinsegae L&B receiving brand royalties.