Covid-19 Effect on the Beer Industry.
As social
distancing is an ongoing phenomenon, meetings with friends and colleagues for a
drink have been pushed back or canceled. As the period of social distancing has
been prolonged, it has started to create Covid-19 stress, also causing the "Corona
Blues Effect", where people are stressed out due to Covid-19. Global
analysis Nielsen Company announced a 291% increase in global alcoholic beverage
sales, which we can understand is not only an issue in Korea.
General Beer Distribution
Before
Covid-19, restaurants, pubs and bars covered 60% of distribution which
decreased to 40% as household and retail took the larger portion of the sales
pie. Major beer companies are focusing on hon-sool promotions and increasing
their distribution to retailers. The
government has made an Emergency Relief Fund payment to all households to ease
the impact of COVID-19. However, these
funds cannot be used at hypermarkets so they are not enjoying the current sales
boom.
Regulation Changes in the Alcoholic Beverage Industry
In the1990s, although
Korea was 10th in the global economic market and over 90% of consumption
was limited to two types of alcoholic beverages, soju and beer. Starting from
2010, as imported beers entered the market, consumers started to realize that there
was no diversity in the Korean alcoholic beverage market. To Increase the quality
and diversity, changes were planned by the Ministry of Economy and Finance.
Liquor Tax Law Renewal
The taxation of
beer and rice wine (탁주) was changed for the first time after
50 years. Starting from 2020 beer and rice wine are taxed based on the alcohol ratio
and volume, compared to ad valorem which was based on price.
Alcoholic Beverage Regulation Improvement Plan
On May 19th,
2020, the Ministry of Economy and Finance (MOEF) announced the Alcoholic
Beverage Regulation Improvement Plan focusing on five sectors: manufacturing, distribution,
sales, tax, and traditional alcoholic beverages.
Manufacturing:
Alcoholic
beverage license was linked to the specific distilleries/breweries and does not
allow manufacturing outside of the premises. However, the improvement plan is
planning to allow OEM production of alcoholic beverages.
The improvement
plan also suggest, if there is no safety risk, a simple change such as mixture
ratio or change of alcohol percentage will not require a full approval but merely
submitting a report which simplify changes in the manufacturing process.
Other
(non-alcohol) production activities in an alcoholic beverage manufacturing line
is restricted. This restriction will be lifted to make by-product manufacturing
more efficient and reduce cost.
Currently, when
manufacturers do not produce a specific alcohol beverage for more than 2 calendar
years, they would lose all alcoholic beverage licenses. The improvement plan suggests only limiting
the license suspension to the product which is no longer being produced.
The plan will
facilitate the introduction of new products.
The time consuming ‘manufacturing process approval’ and ‘quality
inspection’ process which takes about 15 days each but under the new improvement
plan, they can be processed simultaneously cutting the time to introduce a new
product in half to 15 days.
Finally, nitrogen
gas can now be used in alcoholic beverages manufacturing.
Distribution
Distribution of
alcoholic beverages have been limited to exclusive ‘alcoholic beverage delivery
vehicles’. However, the improvement plan will allow the distribution of alcoholic
beverages on any distribution vehicle. This will allow parcel delivery services
to transport alcoholic beverages. (This excluded B2C delivery)
Non-store retail
sales of traditional alcoholic beverage has required a special report to the
tax office (including the social security number of buyers). Under the improvement
plan, if the purchaser has proof of age, the report will be unnecessary.
Sales
Alcoholic
beverages can be delivered to consumers together with food but the limits on
how much could be delivered was not clear. The improvement plan straightens out
the confusion by allowing the value of alcoholic beverages up to the cost of the
food being delivered.
Alcoholic
beverage distribution for any product is strictly segregated between on or off-premises channels (and the containers have the channel on the label). As this involves
unnecessary inventory cost, the plan suggests eliminating the distinction.
Currently,
alcoholic beverage manufacturers are permitted to allow visitors to sample
their products only in their original state without making any changes such as
blending soju with other drinks to make cocktails. This regulation will be changed to allow it
in the future.
Tax
As alcohol tax
has been based on ad valorem,
any change in price or introduction of a new product required a report to the
Director of the National Tax Service. However, as the tax computation is changed
to alcohol content, this will no longer be required.
Soju and beer are
sold through three channels, household use (e.g. supermarkets, department
stores and convenience stores), large discount stores and foodservice. This
will be simplified to two channels.
Currently, a
brewer of beer or traditional wine is required to pay a minimum revenue tax for
each type of beverage produced regardless (for example, equivalent to 50,000
bottles) regardless of the quantity produced.
This is a handicap to craft beverage makers and therefore, the plan is
to simplify the requirement.
Traditional
alcoholic beverage makers must also pay a revenue tax regardless of the
quantity produced. Producers of small
quantities of traditional alcoholic beverages will be exempt from the tax. (The quantity has not been announced yet.)
Under the
current law, a liquor store larger than 1,000 cm3 must submit a sales
record. Under the plan, this will be increased to stores of 3,000 cm3 or
larger.
Traditional alcoholic beverage
Alcoholic
beverages supplied to the military and foreign crews are tax exempt. This will be
expanded to include the traditional and small distillery/brewery onsite sales
to foreign tourists.
Tasting events are
only allowed for licensed alcoholic beverage manufacturers and importers. However,
under the plan, this will be expanded to include licensed alcoholic beverage
distributors and retailers such as traditional alcoholic beverage promotion
centers.
Changes and Outcome
More
improvements are needed in the industry but the improvements will provide more diversity
in the alcoholic beverages market while increasing the quality of products.
Overall, the renewal will eliminate unnecessary costs of manufacturing, tax,
transportation, and inventory and therefore improving efficiency. Moreover,
traditional alcoholic beverages were handicapped under the old regulations but
with the changes the possibilities for growth will increase.
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