Wine to Korea

(Last updated: 12 Nov 2009)

Trends and opportunities

The market

Although awareness of wine among Korean consumers is growing, this is from a small base - wine currently comprises less than one per cent of total liquor consumption in Korea, and many consumers, distributors, retailers, and even some importers have limited knowledge of wine.

Challenges include:

• Korea has complex labelling and tax requirements for imported wine, and consumer prices for wine are in general higher than other alcoholic beverages.
• Australian wine exporters typically have limited knowledge of the Korean market, and in general there is a lack of marketing and promotion by Australian suppliers due to the relatively small market size compared to the USA, European Union (EU) and Japan.
• Aggressive marketing and pricing supports by the EU wine exporting countries, as well as Australia’s lower profile in Korea as a wine exporting country.
• Under the free trade agreement between Korea and Chile, customs duty is zero per cent from 2009. Chilean wine has been promoted as good quality wine with inexpensive price and also effective media marketing has been a major reason for success of Chilean wine in Korea.

Despite these challenges, spending on wine is up and drinking habits are evolving with a focus on the ‘healthier’ consumption of wines, particularly reds, rather than spirits. However, whiskies still dominate the market, accounting for 85 per cent of alcohol imported into Korea.

There are several wine manufacturers in Korea but the local wine industry has been in decline as better quality, imported wines move into the market. The influx of Western alcoholic beverages is also encroaching on the market share of cheaper traditional Korean alcoholic drinks such as soju (a distilled spirit) and rice wines.

The immature nature of the market will impact on what type of wines Australian makers target to the Korean market. The main reflection of this has been a focus on low to medium grade imports with a retail price around A$10-A$25. Because wine-drinking culture is in its infancy, Koreans are driven by brands or country of origin rather than taste when selecting wines, and a belief that imported wines are better quality, especially those from Europe or the USA. However, as more Koreans visit Australia for tourism, study or business, perceptions of Australia as a quality wine producer and exporter will occur.

Demand for wine has grown with changing dietary habits, an increase in Western-style food outlets and a boom in family restaurants and pizza houses. The number of hypermarkets and discount stores that sell imported wine is also increasing and with more than 20 million Koreans now connected to the Internet, there is great potential for Australian importers to use a range of distribution and promotional avenues to maximise their opportunities.

Opportunities

France and USA have dominated the wine market in Korea so perceptions of Australian wines have been poor to non-existent. However, a presence on wine lists in most deluxe tourist hotels and restaurants is playing an integral role in increasing exposure and promoting Australia as a quality wine producer.

While hotels are a good market entry point for new premium wines, there are also good marketing opportunities for wine in Western-style restaurants, delicatessens, specialty wine stores, department stores, discount stores, supermarkets and on the Internet.

Spirits such as soju (the local spirit), whisky and sake have historically dominated liquor sales but the younger generation is shifting away from hard liquors to wine and beer. The best opportunities are in low to middle class wines of numerous varieties.

Competitive environment

French wines typically take 30-40 per cent of the imported wine market because of their strong brand recognition and systematic marketing activities. 

Australian wine currently ranks fifth, behind France, Chile, Italy and USA but ahead of Spain and Germany.

Tariffs, regulations and customs

Imports into Korea are controlled by the Ministry of Commerce, Industry and Energy and the import duty for wine is 30 per cent.

Generally consumer prices for wine are relatively high compared to other kinds of liquor because most wine is imported due to the lack of local production. A combination of import duties, taxes, and high distribution costs and mark-ups results in retail wine prices that are two to four times higher than in Australia.

The tariff and tax system is as follows:

• Import Tariff - 15 per cent
• Liquor Tax - 30 per cent
• Education Tax - 10 per cent
• Value Added Tax (VAT) - 10 per cent

The following outlines the effect of taxes and mark-ups on a $10 CIF bottle of wine:

A. CIF value: A$10.00

B. Tariff (Customs Duty): A x 15% = $1.50

C. Wine tax: (A+B) x 30% = $3.45

D. Education Tax: C x 10% = $0.35

E. Subtotal:  A+B+C+D = $15.30

F. Value Added Tax*: E x 10% = $1.53

G. Fees for Customs Clearance, etc.**: A x 8% = $0.80

H. Customs cleared cost of wine: E+F+G = A$17.63

* The Value Added Tax is refunded to the importer because the tax is carried over to the final consumer.

** In addition to duties and taxes, an additional cost of 7-8% of CIF value will occur due to customs clearance fee, warehousing fee, transportation fee, etc. The amount of this additional cost depends mainly on the kind of inspection the shipment is subject to. For example, the warehousing fee will increase significantly if a detailed inspection is required.

Typical importer mark-ups

Each mark-up calculation is based on A$16.10, the customs cleared cost (H) less VAT.

• Importer's price to discount store: $20.92 (30 per cent)
• Importer's price to supermarket/liquor store: $22.53-24.14 (40-50 per cent)
• Importer's price to luxury hotel: $22.53 (40 per cent)
• Importer's price to wholesaler: $18.51-20.92 (15-30 per cent)

Typical retailer mark-ups

• Discount store retail price: $22.59-25.10 (8-20 per cent)
• Supermarket & liquor store retail price: $29.29-31.54 (30-40 per cent)
• Luxury hotel restaurant retail price: $45.06-90.12 (200- 400 per cent)

Thus, a CIF $10 bottle of wine is typically sold for $22-$25 in discount stores, $29-$32 in supermarkets and liquor stores, and $45-$90 in hotel restaurants.

The cost of advertising and promotions, payment conditions (i.e. cash versus 60 days credit), and sales volume contribute to the big price differences between the different channels. In addition, the Korean Liquor Act prevents retailers and end-users from purchasing from other retailers/discount stores for re-sale purposes, which explains some part of the different prices charged for the same wine.

The Korean Government has a 'Liquor Purchase Credit Card' program as a safeguard to prevent black marketing of liquor products between suppliers and trade buyers. The regulation requires buyers to use special credit cards issued by banks for this program exclusively to pay suppliers when purchasing alcoholic beverage products.

Industry standards

There are several standards that need to be adhered to, primarily that the alcoholic content of wine should not be lower than four per cent or greater than 18 per cent.

Imported wine is required by law to have a Korean language label. In many cases, the importer attaches a Korean label manually after the shipment has arrived in Korea. The Korean language label should contain the following information:

• Name of the product
• Country of origin
• Type of the product
• Importer’s name, address and phone number
• Business license number of importer
• Expiration date (Voluntary)
• Alcohol per cent and volume
• Name and volume of ingredients by percentage
• Place where the product can be returned or exchanged if damaged or defective
• Instructions for storage
• Name of food additives
• Government’s health warning clause
• Bottling date

All foods and beverages imported into Korea are subject to Ministry of Health and Welfare/Food Quarantine inspection.  There are two kinds of inspections: a detailed inspection (chemical analysis test) and a visual inspection (eye/document inspection).

The first shipment of a particular imported product is always subject to a detailed inspection. By regulation this is supposed to take a maximum of 10 working days but in practice it can take much longer. Subsequent shipments of that product are subject to visual/document inspections, which should take no more than two working days if the product is identical in label, product name, alcohol degree, vintage, and net weight (millilitre) to the first shipment.

Importers are required to submit front labels (English language) and back labels (Korean language) to food inspection authorities.

Experienced importers are well aware of all inspection and labelling requirements and are the best source of up-to-date information on labelling and inspection requirements.

Marketing your products and services

Market entry

It is recommended that you appoint a proactive wine importer with as wide a distribution network as possible. In fact, you may need to appoint a number of importers to gain full national coverage. Keep in mind that while there are more than 100 licensed wine importers in Korea, less than 30 of them are actively trading.

As it is important to engage a proven performer, you should assess current business activity and their track record in any discussions you have with potential importers and agents. As online activity in wine sales is on the increase it would also be prudent to select an agent with knowledge, access or influence in this growing sales medium.

In recent years, the market has seen the development of new marketing and educational channels for wine including wine schools, Internet-based wine communities, wine bars and wine exhibitions, which have contributed to the expansion of wine consumers.  Wine is particularly gaining popularity among young professionals and high-income elderly people.

Wine shops have emerged as a major place to purchase wine and the market has seen many new shops open in recent times. Traditional bars also have become an important channel for wine sales while hotels have lost their leading role.

More wine is being sold through discount stores (hypermarkets) as more Koreans do their grocery shopping through this channel.

In marketing wine to Korea there are a number of trends and promotion measures that should be considered:

• Target the Korean tourism market in Australia to increase awareness of wine and supply local traders with promotional materials.
• The demand for wine has grown with an increase in Western-style food outlets and a boom in family restaurants and pizza houses. This presents wider opportunity for wine sales through these vendors.
• The biggest seasons for wine sales are Lunar New Year’s Day (late January), Korean Thanksgiving Day (mid-September) and Christmas when wine is purchased as a gift item. Wine is also a popular gift for anniversaries and birthdays.
• Approximately 60 per cent of Korea’s population are 30 years or younger, and this group is showing a preference for Western alcoholic beverages. Women are also a key target market as they normally select wine at department stores and have more social or work lunch meetings than men.
• Promotional events are also a key to wine marketing in Korea. For example, restaurants targeting young couples as well as in-store tastings are good avenues to build brand recognition. This is an area you should work on with your agent or importer. You should also look to supply local traders with promotional materials in Korean. This may also include wine appreciation courses or links with food cooking schools.

Distribution channels

While distribution is conducted through importers and agents, the distribution system in Korea is fragmented and inefficient, so importers must deal with a number of distributors to gain full national coverage. Very few companies have a national distribution system or carry a full product range. Local distribution companies and multinational chains distribute imported wine extensively to hypermarkets and discount stores and the number of these outlets is increasing.

While hotels are still a good market entry point for new premium wines, there are also good marketing opportunities for wine in Western-style restaurants and delicatessens, specialty wine stores, department stores, discount stores, supermarkets and on the Internet.

Links and industry contacts

Wine–related resources

Best Wine Shop – www.wineshop.co.kr
Doosan – www.doosan.com/en/main.do
Keumyang – www.keumyang.com
Korea Wines & Spirits Importers Association – www.kwsia.or.kr
Wine Nara – www.winenara.com

Contact details

The Australian Trade Commission (Austrade) is the Australian Government’s trade and investment development agency, operating as a statutory agency within the Foreign Affairs and Trade portfolio.

Austrade assists Australian businesses contribute to national prosperity by succeeding in trade and investment, internationally, and promoting and supporting productive foreign investment into Australia.

Austrade:

• Delivers services that assist Australian businesses initiate, sustain and grow trade and outward investment.
• Promotes Australia as an inward investment destination and, with the States and Territories, supports the inflow of productive foreign direct investment.
• Administers the Export Market Development Grants scheme.
• Undertakes initiatives designed to improve community awareness of, and commitment to, international trade and investment.
• Provides advice to the Australian Government on its trade and investment development activities.
• Delivers consular, passport and other government services in designated overseas locations.

A list of Austrade offices (in alphabetical order of country) is available.

More information

For further information please contact Austrade on 13 28 78 or email info@austrade.gov.au