Thursday, March 05, 2009

Korean Soju Soars as American Beer Floors

Rather than my usually amazing in-depth analysis, I found two articles that I wanted to mention. As the economic recession worsens, more and more people choose to tighten their belt and cut out some luxuries they deem unnecessary. For instance, my wife and I have started socializing less at bars and more at home and were surprised to discover how many others enjoyed doing that as well. (Drinking games anyone? We've been practicing.) Fortunately, our jobs are secure for now, so we're not that concerned yet, but since we plan to move to the US next year, the exchange rate is something that we do stress over.

Nonetheless, it's interesting to look at what industries remain "recession-proof". Most assume that in stressful times, the alcohol and tobacco industries will remain pretty steady if not more profitable. People get stressed, so they drink and smoke. Simple. In Korea, the trillion won ESL industry is one of the fastest growing
industries still, but it's certainly seeing signs of contracting as schools cut costs, suspend teacher pay and even close down. In fact, my KT article next week will address the issue of adult 1:1 English institutions and why they are especially having a hard time right now.

I digress (and plug), The Financial Times reported that in Korea, soju sales were jumping dramatically.

"Stung by the bitter winter and depressed by the flagging economy, South Korean businessmen head for the convivial glow of street tents where they order eels and chicken gizzards and drown their sorrows in soju, the national fire-water.

Soju sales are soaring and foreign companies are considering buying into one of the few Korean industries to relish the economic crisis."

I'm not sure I agree that most of the soju is being drunk in the tents, but it certainly helps illustrate the bleak state of the economy. I live on the main drag in Gangnam, so I get the opportunity to witness these guys a lot. I can say that they are certainly drinking more these days and since many of them are getting laid off (and hiding it from their family), I totally understand.

What I don't understand is the following statement.

"It's an energy drink for Koreans. When Koreans are in distress, they drink soju, then get up the next morning and work hard," Mr Ahn said. Contentious as it may sound, soju does have a reputation for not causing hangovers.

Yeah, first of all, it's contentious as hell and secondly, I have had many rough hangovers from soju. Call it what it is! They're stressed out. Don't give me this energy boost garbage. People are losing their jobs and he's painting soju as a cure-all. Now is not the time to stump for soju. It's a time for people to be working harder and not boozing, so they will remain productive at work. (And yes I am aware that a "productive Korean worker" is an oxymoron, but I stand by my statement.)Beer and wine are not doing so well in Korea either.

Wine bars were sprouting like bamboo shoots and dotted hip streets and back alleys. Now, with the economy tanking, people tightening their purse strings and the won losing value, they are going under in droves or opting for other lines of business, unable to make ends meet.

I've always thought that there were too many wine bars in Seoul anyways.

``This used to be a good business ― you get more from selling a decent bottle of wine than a dozen or more bottles of soju,'' said Choi, who says sales have dropped nearly 40 percent since the first half of last year.

``However, people are not buying good wine anymore and there are days when I don't even get five customers. I have to think about converting to selling beer, maybe even a grill joint for pork belly or baby octopus,'' he said

Then again, there are way too many pork belly joints as well. On side note (HT to GI Korea), US beef is still flying off the shelves just like it did when they started importing it last year RIGHT AFTER the mad cow hysteria subsided.

Things in the US seem to be fairing a little differently. Besides the fact that Americans wouldn't immediately turn drinking Budweiser into an act of patriotism, alcohol sales seem to be going the opposite direction than in Korea.

From 538:

Rather than pretend to know anything about this trend, I'll let you read it from Nate.

As you can see, there has generally not been much of a relationship between alcohol purchases and changes in GDP -- the correlation is essentially zero. Nor have alcohol purchases historically been any kind of lagging or leading indicator.

But something was very, very different in the fourth quarter of 2008. Sales of alcohol for off-premises consumption were down by 9.3 percent from the previous quarter, according to the Commerce Department. This is absolutely unprecedented: the largest previous drop had been just 3.7 percent, between the third and fourth quarters of 1991.

But if beer is no longer doing well (I guess we'll have to take a look at Q1 of 2009 to confirm), then what is?

It's not just beer, either. Sales of jewelry and watches were off by 7.2 percent in the fourth quarter, the third-largest drop ever recorded. Casino gambling receipts are down about 8.5 percent from a year ago, far and away the largest decrease ever over four consecutive quarters.

What's doing well? The movies. The movies, also historically a recession-proof industry but not a counter-cyclical one, are doing terrifically well. Motion picture theaters increased their revenues by 10.9 percent in the fourth quarter, according to the Commerce Department. But the movies are not typically seen as extravagant. You don't feel guilty after purchasing a movie ticket; you feel kind of wholesome

There you have it. I have to wonder that if Americans had something as similar, acceptable and pervasive as soju then it too would booming. I do think that Korea's business/drinking culture is a big part of this and the lame "It makes Koreans work harder" hogwash doesn't fly with me.

Is it acceptability or availability that makes Koreans consume more?


Mike said...

I've been doing a lot of research into this at work and have seen some pretty interesting stats.

From the numbers I just pulled, both Beer and Soju have decreased in overall value compared to the beginning of 08 but even more so in actual volume. It's a trend I'm seeing in a lot of preferred consumption categories and always happens during economic downturns.

It's pretty intuitive stuff but still always interesting to see the actual numbers match up with assumptions.

The Clam said...

It's decreased in value and sales? I could see value, but sales seem to be increasing. No?

Mike said...

I can't see actual numbers of sales but the value of those sales has decreased compared to last year. Since volume is decreasing more it could mean people are buying smaller sized drinks than before. It's happening in not only alcohol but tofu, gochujang, tuna, and a lot of other food staples.

The markets in most categories I look into have recession written all over them.

The Clam said...

"it could mean people are buying smaller sized drinks than before"

Could this be a part of it: People are buying bottles of soju/booze at the market, rather than at restaurants or at cocktail places, while trying to save money, therefore lowering the overall volume consumped, i.e., people drink less at home or without their co-workers.


Companies are cutting costs all across the board and 회식's are the first items getting axed.

Any thoughts?

Mike said...

I think both of those ideas are probably a part of it. Moreso the first one than the second though. My company has cut out the 3 day weekend trips across the country but has maintained an open pocketbook when it comes to going out and drinking. Business here would cease to exist if client shmoozing didn't involve a trip to the hof (and maybe the room salon afterwards...)