Scotch whisky struggles to succeed in South Korea

Alcohol is considered an important part of daily life in South Korea; essential for unwinding in the evening and coping with a stressful work environment. Post-work drinks, where Soju and beer are prominent drink choices, also offer a way of bonding with colleagues and staying abreast of office news.

While imported beers, mixed drinks and wine have been enjoying strong success in the South Korean market, it is the whisky category (which has traditionally consisted almost entirely of Scotch) that continues to see its market share dwindle. “Since peaking in 2002, Scotch volumes have fallen by 75%, driven by declines in local brands aimed at the traditional on-trade (TOT) market, such as Diageo’s Windsor and Pernod Ricard’s Imperial,” remarks Tommy Keeling, IWSR’s Research Director for Asia Pacific.

In the face of continued decline, Pernod Ricard announced the sale of its Imperial Scotch brand and Diageo announced plans to close its whisky bottling plant in Incheon. Edrington also announced plans to cease its South Korean operations, though this decision is likely to have been driven by factors outside of the country’s dwindling Scotch sales. “Edrington’s business in South Korea is focused on single malts, which is a growing category in the country,” notes Keeling.

Blended Scotch whisky, however, continues to struggle in South Korea. The traditional on-trade (or TOT), which includes establishments such as Karaoke or hostess bars, remains the main channel for Scotch whisky sales. “The past decade, however, has seen the TOT channel shrink dramatically, due to a slower economy, stricter anti-corruption laws and a change in attitudes among younger people. While the modern on-trade (MOT) channel, which includes venues such as high-energy clubs, western style bars and gastro-lounges, is growing, it is not at a fast-enough rate to compensate for the decline in the TOT,” adds Keeling.

Compounding the problem has been the rise of a new class of low-ABV whiskies (typically 35% to 36.5% ABV), which appeared in 2010 pioneered by Busan-based Golden Blue. In 2018, sales of low-ABV whiskies surpassed Scotch for the first time. Keeling adds, “low-ABV whiskies are perceived as being healthier and easier to drink, which has made them popular with TOT hostesses who are key in driving sales in the TOT. While volumes have largely been restricted to the TOT, brands are increasingly bringing them into the MOT and off-trade.”

“It is possible that consumers will eventually tire of low-ABV whiskies, but whether they move back to Scotch remains to be seen,” notes Keeling.

While Scotch faces increasing struggles, the South Korean whisky category does offer glimmers of hope; companies are innovating with new products that tap into the larger health and wellness movement; US, Irish and Japanese whiskies are growing, driven particularly by the popularity of highballs; and the small standard Scotch segment is enjoying success, driven by at-home drinking and the MOT.