Challenges of the Stagnant 'Hongsam Industry'... Targeting the MZ Generation and Western Markets [AK Radio]

The red ginseng industry, which once reigned as South Korea's representative health functional food, now stands at a crossroads. The era when "health functional food meant red ginseng" has passed, and it is now a time that calls for new challenges and innovation. According to recently released market trends, while the domestic health functional food market grew significantly from 4.9 trillion won in 2019 to 6.2 trillion won in 2023, the red ginseng market has actually contracted.

Market Status and ChallengesAccording to industry sources, the red ginseng market size decreased from 1.4 trillion won in 2021 to around 1.1 to 1.2 trillion won in 2023. The market leader, KGC Ginseng Corporation's 'CheongKwanJang' brand, has seen its sales stagnate in the low 1 trillion won range, while the second-ranked brand, Nonghyup Red Ginseng's 'Hansamin,' saw annual sales drop from 70 billion won to the 50 billion won range. This contrasts sharply with the overall growth trend of the health functional food market.

What is particularly noteworthy is that unlike the past when red ginseng grew by replacing herbal medicine markets in Korean medicine clinics, now even red ginseng is yielding its place to new health functional foods. Experts analyze that this change is closely related to the generational shift among consumers. The MZ generation, emerging as the new main consumer group in the health functional food market, tends to perceive red ginseng as "old-fashioned." They prefer modern health functional foods such as vitamins or probiotics over traditional red ginseng products. In particular, probiotics have succeeded in gaining favor among young consumers by using a more sophisticated term instead of the traditional name "lactic acid bacteria."

This trend change is clearly reflected in the rankings of health functional food categories. Currently, multivitamins hold second place and probiotics third in the health functional food market, with these products showing steady sales growth. To overcome this crisis, the red ginseng industry is attempting multifaceted innovations. A recent study by a domestic university research team on red ginseng's effect on improving endometriosis is one example of such efforts. Specialized research institutions like the Korean Ginseng Society, with over 50 years of research history, are focusing on discovering new efficacies of red ginseng. Product innovation is also active. To overcome the limitations of traditional concentrates or stick-type products, new formulations such as film-type products that dissolve on the tongue and candy-type products for children are being developed. These reflect the needs of modern consumers who prioritize convenience.

Innovation in distribution channels is also noteworthy. The success case of KGC Ginseng Corporation's 'CheongKwanJang Mall' is particularly significant. In an environment where it is generally difficult for individual consumer goods companies to succeed with their own online malls, CheongKwanJang Mall has achieved stable growth through a unique strategy. The success factors of CheongKwanJang Mall can be summarized in three main points. First, effective linkage between online and offline channels. Consumers can exchange or return products purchased online at local dealerships, enhancing convenience. Second, maintaining a strict pricing policy. It is notable that the mall has successfully operated while adhering to the same fixed price policy as offline stores. Third, expansion as a platform. In addition to red ginseng products, carefully selected other health foods and groceries are sold, establishing its position as a trusted premium shopping mall.

The red ginseng industry is also actively pursuing product portfolio diversification. For example, KGC Ginseng Corporation is expanding product lines using new herbal ingredients such as deer antler velvet and agarwood. This is a strategic choice to compensate for the stagnation in the red ginseng market. However, this portfolio diversification strategy is inevitably limited to large companies with capital and R&D capabilities. Small and medium-sized enterprises mainly focus on niche markets through price competitiveness, which deepens polarization within the industry.

The industry is focusing on overseas market development as a long-term growth engine. Korean red ginseng has already established itself as an essential purchase item in Greater China and Southeast Asian markets. The CheongKwanJang advertisements on large billboards in Hong Kong symbolically demonstrate this achievement. However, true advancement requires entry into Western markets. Experts point out the need to develop formulations tailored to Western consumers' tastes and consumption patterns. Currently, product development in forms familiar to Westerners, such as capsules or jams, is being actively considered.

The future of the red ginseng industry ultimately depends on innovation, according to experts. When product innovation targeting the MZ generation, digital transformation of distribution channels, and localization strategies for overseas market entry are successfully implemented, it is expected that the industry can regain its status as Korea's representative health functional food industry. Particularly, product innovation and marketing aimed at younger generations have emerged as urgent tasks. The key lies in how to harmonize tradition and modernity, maintaining credibility as a health functional food while building a trendy image.

Moreover, overseas market entry requires thorough localization strategies beyond simple exports. Product development considering local food cultures and consumption patterns, establishment of local distribution networks, and effective marketing strategy formulation are required. The Korean red ginseng industry now stands at an important crossroads for a new leap forward. Whether it can establish a new status in the global health functional food market through modern innovation while maintaining traditional strengths is a challenge that the industry faces.

Editor's Note

This content is also available on Asia Economy's economic podcast 'AK Radio.' AK Radio is a platform that provides investors with essential information on politics, economy, international affairs, tech, bio, and digital trends. Clicking the video play button within the article allows you to hear the reporter's voice. This article is a reorganization of the content broadcast on AK Radio through Claude.