'If Samsung makes makgeolli'

Kooksoondang Brewery CEO Bae Jung-ho Korea Times photo by Shim Hyun-chul

Kooksoondang CEO talks about globalization of Korean traditional wine

By Kim Da-ye

The Korean liquor has an unhappy history. While there were more than 600 kinds of wines and spirits in Korea during the Joseon Kingdom (1392-1910), they quickly disappeared under Japanese rule. In 1909, a heavy tax was placed on all alcoholic drinks and people were banned from brewing liquor in their home. Even after the country gained independence from Japan, in 1965, it became illegal to brew liquor except the Japanese-style sake with rice to ensure the country has a sufficient supply of rice. By the 1980s, the rich pool of traditional liquors nearly disappeared, with just “soju,” literally a diluted ethanol, and “makgeolli” remaining.

Makgeolli, a thick rice wine, survived, but it had a checkered past. Brewers had to use wheat flour to make the wine because rice was banned in the creation of alcohol. To quicken fermentation and cut costs, some breweries added chemical called carbide. The chemical is known to cause headache, and some consumers still avoid makgeolli because of the bad memories of hangovers. While the rice wine dominated the market until late 1970s, it only accounted for 4.3 percent of the domestic market by 2002.

Makgeolli did make a comeback in 2010 and 2011, but it was short-lived. Still, one brewery is fighting to bring the product back and globalize it. The firm’s CEO hopes that battle isn’t lonely. He wants more competitors in the game. The stronger and bigger they are, the better it will be.

“I often say that Samsung should enter the makgeolli market. Think of the vast global network Samsung has,” Bae Jung-ho, the CEO of Kooksoondang Brewery, said in an interview.

The CEO said that a series of regulations led to makgeolli makers remain small-scale and complacent. The lack of competition, marketing and branding and innovation is dragging down the makgeolli market from a giant leap the liquor certainly deserves. In spite of leading a medium-size business, he doesn’t agree with the designation of makgeolli as an “item appropriate for small and medium enterprises” that effectively ban big corporations from entering the market.

“The market should be open to competition so that existing makgeolli makers would be encouraged to reform themselves and improve the industry as a whole,” Bae said.

Entering brewery business

Kooksoondang is better known for Baekseju, a clear rice wine brewed with raw rice and Oriental medicinal herbs. Baekseju was popular throughout the 1990s and early 2000s when more Koreans focused on their well-being. Thanks to Baekseju, the company’s sales jumped from hundreds of millions of won in 1992 to 130 billion won in 2003.

The launch of Baekseju was, in a way, accidental.

Kooksoondang was originally a manufacturer of “nuruk,” an enzyme for brewing Korean wines. The firm wanted to get into the makgeolli business, but regulations back then only allowed brewers to manufacture and distribute makgeolli only within a “gun,” a subdivision of a city. Each gun had one makgeolli maker, and the small businesses sometimes formed a citywide association to reach more to consumers. For example, breweries in Seoul formed the Seoul Tak Ju Maf Association that produces Seoul Jangsoo Makgeolli.

At the time, it didn’t make sense for Kooksoondang to enter such a small market, but after acquiring a license to run a small brewery in northeastern Seoul, Bae challenged the regulation.

The company submitted a petition against the regulation to the National Assembly and collected signatures.

“The petition we wrote in the three years will be as thick as five volumes of an encyclopedia,” Bae recalled. He said he even filed a constitutional appeal, but the efforts had no outcome at all.

“Brewers had traditionally been landowners. A third of lawmakers were previously makgeolli makers, so they had strong lobbying power,” he said.

Bae gave up on commercially brewing makgeolli and looked for an alternative. Entry barriers to most alcohol-related businesses were too high, but Bae thought the “yakju” market would fit his needs. The clear rice wine was only used at memorial services known as “jesa.” Yakju made up less than one percent of the domestic alcohol market, which Bae thought was too small for those in power to care about.

Kooksoondang lobbied for the deregulation of yakju and won. In 1994, yakju could be distributed across the country. The brewery earned 2 billion won that year, and sales rose. The brewery brought in 4 billion won in 1996 and 7 billion won in 1997.

“Our dream back then was humble. We thought selling 10 billion won worth of yakju would be a massive contribution to the traditional liquor industry,” Bae said.

Lack of competition hurts market

The restriction that required makgeolli to be manufactured and distributed within a “gun” was abolished in 2008. Because of the much-anticipated deregulation and decline of Baekseju, Kooksoondang has recently focused on makgeolli. The raw rice wine accounted for more than 51 percent of the firm’s sales in 2012 while the portion of Baekseju shrank to around 21 percent.

Interest in makgeolli surged in 2010 and 2011, along with enthusiasm to globalize traditional Korean rice wine. However, that enthusiasm didn’t last long, as sales of imported grape wines, foreign beers and Japanese sake grew.

Bae blames makgeolli makers for the decline.

“Makgeolli is perceived as a cheap drink compared to beer. Makgeolli makers try to minimize costs on marketing, researching, development and packaging. While beer companies air TV commercials with famous models, makgeolli firms don’t do anything,” Bae said.

A 750 ml bottle of makgeolli sells for about 1,200 won, while a 360 ml bottle of soju sells for about 1,100 won. A 355 ml can of beer is priced below 1,300 won. Taxes account for only 5 percent of the makgeolli price, compared to 72 percent of the price of soju and beer.

Consumers are sensitive to price hikes because they are used to makgeolli’s cheap prices. Bae hopes to break the perception and make makgeolli more expensive and higher quality. He admits that it will be difficult for a small player like Kooksoondang, which holds less than a 20 percent of the market, to lead such changes. He claims his determination isn’t about money; it’s about the ability to transform the market.

“Makgeolli has packaging and design problems, and it will have trouble going global,” Bae said. “Chinese consumers laugh at the PET bottle. For makgeolli to take off, it has to be in glass bottles. However, you cannot produce makgeolli in glass bottles when you make 10,000 of them a day. You need to produce 200,000 to 300,000 in order to do that.”

In an effort to revive the makgeolli market, Kooksoondang launched a new product this month called Daebak. The firm hired “The Thieves” actress Jun Ji-hyun as its spokesperson.

“It cost us 1 billion won to hire Jun Ji-hyun. That’s 1 percent of our annual revenue,” Bae said. “We are really doing everything to popularize makgeolli.”

Bae advocates for the entry of large corporations into the makgeolli industry. He said that food company CJ CheilJedang hoped to enter the market, but the government would only allow the firm to distribute, not manufacture, makgeolli. Hite Jinro, the country’s most profitable soju maker, is only allowed to operate a makgeolli business abroad, not in Korea.

“Hite Jinro, of course, should be allowed to make makgeolli in Korea. Samsung is also welcome,” said Bae.

Is being acquired by a more powerful corporation a possibility for Kooksoondang? Bae says that’s not likely. “There has been no talk of this because we are known as an extremely stubborn company. After all, we are listed in the stock market, though.”

Restoring traditional liquors

In 2003, Kooksoondang had a great year, pulling in more than 130 billion won. Thanks to Baekseju’s popularity, revenue nearly doubled each year. Bae even set the sales goal for 2004 at 400 billion won, but the company did not meet it.

“It was an excessive greed and by the time we realized it, our business was already going down the hill,” the CEO said. Profits started to decline, and by 2008 the company made only a fraction of what it did in 2003, bringing in 54 billion won.

The drop in sales hurt the distribution network. Bae says shrinking incomes forced sales staff to leave the company. Kooksoondang came up with more products to turn sales around but had little success.

During the downturn, Bae wanted to return to his original reason for starting a brewery, which was to make liquors that represent Korea.

In 2008, the firm launched a project to restore traditional liquors that had disappeared during Japanese colonial rule and the ban on brewing with rice. Using old books as a guide, he ordered each of his research and development staff to restore one kind of liquor per year.

In the first year of the project, four types of liquor were restored including “Ewhaju” and “Changpoju.” Ewhaju, a yogurt-like thick rice wine, is available in department stores and at Baekseju Maeul, Kooksoondang’s restaurant chain.

Bae said the project was a turning point for the company. “Employees changed. As we restored traditional liquors, employees learned about the drinks our ancestors brewed and which techniques they used,” Bae said. “Employees said they learned a lot that year.”

The project also drew media attention. When makgeolli became popular in 2010, Bae said journalists would contact Kooksoondang when they had questions about traditional alcoholic drinks.

“We were portrayed as a leading makgeolli maker even though our share of the market was small,” Bae said.

Globalization with “hansik”

Kooksoondang’s ultimate goal is to sell makgeolli on a global scale, but Bae does not want to hurry up. He believes that the globalization of hansik, or Korean food, should come first. Behind such a belief is his philosophy of the pairing of the sauce and the liquor.

“What decided the taste of nuruk is a microorganism living in the air,” Bae said. “And meju (a brick of dried fermented soybeans), which is the key ingredient for soy sauce, gochujang (a red pepper-based condiment) and doenjang (Korean miso), are also fermented by microorganisms in the air. It’s only natural that makgeolli and Korean sauces go well together.”

Bae says that the same logic works with matching grape wines with wine-infused foods.

The CEO is optimistic about the growth of Korean wines, noting the trends of Korean restaurants popping up in trendy areas of Manhattan outside the Koreatown. Danji, the first Korean restaurant to be awarded a Michelin star, for instance, sells Kooksoondang’s makgeolli. The restaurant doesn’t serve as the wine is in a green PET bottle but in colorful glasses.

“It’s been just ten years since Japanese restaurants started booming. Every small city in the West now has a Japanese restaurant, and that’s quite a new phenomenon. It took sake 20 years to globalize,” Bae said with a hint of optimism.