Export opportunities for Alaska Distilleries and Breweries
Study of Foreign
Market Opportunities
University of Alaska Center for Economic Development
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Executive Summary ...... 5 1.1 Canada ...... 6 1.1.1 Distribution channels ...... 6 1.1.2. Importance of Hiring an Agent ...... 8 1.1.3 Market trends: Beer ...... 9 1.1.4. Market Trends: Distilled Spirits ...... 14 1.1.5 Market associations and guilds ...... 19 1.1.6 Local industry regulations ...... 20 1.1.7 Recommendation on ways to advertise Alaska distilled spirits ...... 22 1.2 Republic of Korea ...... 24 1.2.1 Distribution channels ...... 24 1.2.2 Beer Market Trends ...... 26 1.2.3 Distilled Spirits Market Trends ...... 30 1.2.4 Market associations and guilds ...... 35 1.2.5 Local industry regulations ...... 36 1.2.6 Export/import tariffs and Pricing ...... 38 1.2.7 Packaging and labeling rules ...... 39 1.2.8 Recommendation on ways to market Alaska distilled spirits ...... 40 1.3 Germany ...... 41 1.3.1 Distribution channels ...... 42 1.3.2 Distilled spirits market trends...... 42 1.3.3 Market trade shows and fairs...... 48 1.3.4 Local industry regulations ...... 49 1.3.5 Export/import tariffs and regulations ...... 50 1.3.6 Packaging and labeling rules ...... 51 1.3.7 Recommendation on ways to market Alaska distilled spirits ...... 52 1.4 China ...... 53 1.4.1 Distribution channels ...... 53 1.4.2 Market trends: Beer ...... 55 1.4.3 Market associations and guilds ...... 62 1.4.4 Local industry regulations ...... 63 1.4.5 Export/import tariffs and regulations ...... 65 1.4.6 Packaging and labeling rules ...... 65 1.4.7 Recommendations on ways to market Alaska distilled spirits...... 66 Methodology of Choosing the Countries ...... 67 Appendix 1: Licensed Importers of Beer in South Korea (requested on May 5th, 2015)...... 74 Appendix 2: Licensed Distilled Spirits Importers in South Korea (requested on May 5th, 2015)...... 76 Appendix 3: Official Beer Importers in China...... 81 Appendix 4: Parameters Examples...... 82
Executive Summary “Export Opportunities for Alaska Distilleries and Breweries” is a report that is part of an initiative by the Division of Economic Development (DED) aimed at identifying new markets for Alaska beer and distilled products. The overarching goal is to help beer and liquor producers triple sales in five years,1 and there are several immediate goals aimed at achieving this result: providing an overview of four chosen foreign markets, import and internal market regulations, main distribution channels, tariffs and taxes applied to alcoholic beverages, and making recommendations for how Alaska products should be marketed.
In order to choose target countries CED staff developed a methodology to rank as many as 20 countries which import the most US products based on the dollar amount of trade (please see chapter “Methodology of Choosing the Countries.”) The framework includes several parameters: import volume of each product, share of import to a specific country, import growth rate, export volume of a product from the US, share of exports to a specific country compared to total exports from the US, export growth rate, country trade volume with Alaska, “key trade partner” parameter, and existence of a free trade agreement (FTA) between the country and the US. These parameters serve as indicators to help measure the opportunity for export partnerships.
As a result of this ranking system, Canada, China, and Germany were identified as ideal partners for beer exports. Canada, Germany, and South Korea (Korea) were chosen as the best markets for distilled spirit exports. Because Germany is a member of the European Union, most import regulations are derived from EU regulations and apply to all member states. Canada is the largest beer importer, accounting for more than $620 million of imports in 2013, 26% of which come from the US. China is in second with more than $230 million traded – 4% from the US – and Korea counts for $89 million, with 7.5% from the US.
Germany is the overwhelming leader for imports of distilled spirits (gin, vodka, and whiskey combined), with more than $755 million of distilled spirits imported in 2013. 14.56% came from the US. This figure is almost twice as much as was imported to Canada, $347 million in 2013, with 23.8% coming from the US. Korea had more than $196 million of imports, and 3.89% from the US.
When looking at each category of distilled spirits, Canada leads the dollar amount of vodka imported from the US, with total imports in 2013 equal to $41,218,283, equal to 30% of overall vodka imports to Canada. Canada is also the largest importer of gin from the US among the chosen countries. In 2013, imports from the US totaled more than $519,000, 2% of the total gin import to Canada. Germany is the leading whiskey importer among the chosen countries with more than $109 million trade volume with the US, which equals 19% of whiskey imported into Germany.
US distilled spirits and beer are well-positioned in the explored markets. Beer imports from the US rank first among all trade partners for Canada, sixth for South Korea with 7.53%, and sixth in China with 3.55% of imports. The US has a free trade agreement with Canada which guarantees zero import tariffs on alcoholic beverages, and there are also zero import tariffs on alcoholic beverages imported to China. Korea imposes a 12.8% tariff on beer imports.
As for distilled spirits, all researched countries except Korea have zero import tariff on US distilled spirits. Korea has a 3% import tariff on whiskey and gin, and 4% on vodka. The US is the largest exporter of vodka to Canada, the second largest importer of gin and whiskey to Korea, the second largest importer of
1 Retrieved from Executive Summary of DED Report. whiskey to Germany, and the second largest importer of whiskey to Canada. In almost every country mentioned, the United Kingdom is the leading producer of gin. Canada, for example, takes up to 98% of gin from the UK. The only exclusion is Korea, although the total volume of imports is relatively small in comparison with the United Kingdom. Alaska distilleries may consider focusing on markets where the US is leading in imports and has low import tariffs.
Based on research conducted by CED staff most mentioned countries, especially Germany, have trends toward consuming healthier products even within the alcoholic beverages segment. Beer and liquor made from natural components, and low fat and alcohol content are highly-valued. Innovative products are also valuable at present, as millennials are among the most important consumption groups.
When looking for export opportunities in foreign markets, US suppliers should consider making connections with local import agents, professional brokers, distributors, and local distilled spirits and beer manufacturers. Local stakeholders have strong knowledge of industry regulations and can walk the exporter through processes and procedures. In some countries, China and Korea in particular, building strong relationships with local distributors is a key aspect of business.
This report contains detailed information on the current market conditions for chosen countries, including market trends and segmentation, competition, local and import regulations, pricing and tariffs, as well as recommendations on how to market product in every chosen country, which gives Alaska producers an insight on exporting process. 1.1 Canada 1.1.1 Distribution channels A unique characteristic of the alcoholic beverage industry in Canada is that alcoholic products cannot be shipped across provincial borders without approval from provincial liquor boards.2 The provincial liquor board is responsible for distributing alcoholic beverages, and therefore has a monopoly on selling them. Beverage alcohol must be imported into Canada through a liquor board or commission in the province where the product will be sold or consumed. There are three major importers of vodka (220860):
1. Liquor Control Board of Ontario, Toronto.
2. Liquor Distribution Branch of BC, Vancouver.
3. Treasury Department Government of Alberta, Edmonton.
These importers are responsible for about 78.19% of vodka imports by dollar value, or $111,036,996 CAD (total imports in 2013 equaled $142,017,664 CAD.)
Three major importers of beer:
1. Liquor Control Board of Ontario, Toronto.
2. Societe Des Alcools Du Quebec, Montreal, Quebec.
2 Food Supply Chain – Beverage Sector. Retrieved from http://www.parl.gc.ca/HousePublications/Publication.aspx?DocId=6226525&Mode=1&Parl=41&Ses=1&Language= E&File=141. Retrieved on 03.15.2015. 3. Treasury Department Government of Alberta, Edmonton.
These importers are responsible for about 72.52% of beer imports by dollar value, or $554,932,504 CAD (total import in 2013 - $765,168,446 CAD.)
Three major importers of whiskey:
1. Liquor Control Board of Ontario, Toronto.
2. Societe Des Alcools Du Quebec, Montreal, Quebec.
3. Treasury Department Government of Alberta, Edmonton.
These three importers are responsible for about 76.33% of whiskey imported by dollar value, or $141,189,992 CAD (total import in 2013 - $184,969,452 CAD.).
In Canada, the “Importation of Intoxicating Liquors Act” gives provincial liquor boards and commissions the ability to purchase and distribute alcohol.3 Until recently, the act restricted interprovincial movement of alcohol, but in 2012 an amendment changed restrictions to allow interprovincial transportation if permitted by the province. Many provinces still have strict regulations, meaning that companies wishing to sell alcoholic beverages must deal with provinces directly.4 Each province has its own importing regulations and standards, and it is best to contact them directly for their guidelines.
In all provinces except Alberta, the liquor industry is government-owned. Alberta has completely privatized its liquor industry, which now operates as a “Consignment Program.” Even if the regulations differ in each province, the process of importing alcohol is more or less the same. The description below is based on best practices in British Columbia and Ontario (see Graph 1.) Alberta regulations will be mentioned, as they are an exception from the general rule. These specific provinces were chosen for regulatory analysis due to their standing as Canada’s primary importers of beer, whiskey, and vodka.
Step 1: Find a distributor or agent. All imported alcohol products must go through the local agent or distributor, who represents the supplier. Usually liquor boards located in every province have a list of recommended agents, so it is possible to find a new agent and to apply for an agent license through the board. In Alberta, all liquor stores are privately-owned, and there are currently 1,300 licensed retail liquor stores and more than 400 registered agents. Under the consignment program only registered liquor agencies are authorized to import and market a supplier’s product, which is either the supplier or agent who owns the product.
Step 2: The supplier works with an agent or distributor to make sure products meet requirements for quality, pricing, labeling, transportation, and packaging.
Step 3: The distributor or agent places a purchasing order with the liquor board in order to buy products from a supplier. Usually evaluation or registration of the product by the liquor board is required, but it
3 Overview of the Wine and Spirits Sector in Canada. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Overview%20of%20the%20Wine%20and%20Spirits%20 Sector%20in%20Canada%20_Ottawa_Canada_8-26-2013.pdf. Retrieved on 04.10.2015. 4 Overview of the Wine and Spirits Sector in Canada. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Overview%20of%20the%20Wine%20and%20Spirits%20 Sector%20in%20Canada%20_Ottawa_Canada_8-26-2013.pdf. Retrieved on 04.10.2015. must be arranged by the agent as well. One agent can represent only one product or product line. A supplier may authorize an agent to set price quotations or payment terms on its behalf (please see the “Pricing” section for details.)
Step 4: The liquor board begins placing orders for the supplier under terms and conditions confirmed by the agent and supplier.
Step 5: Import procedures and customs clearance is made by the liquor board, with the agent paying all required fees and duties. After that the order proceeds to the board warehouse, where it is stored until being transported to the final destination – a liquor store.
Check products requirements for quality, Distributor or agent Find a distributor or pricing, labeling, places a purchasing agent. transportation and order to the liquor board packaging
Liquor board takes care of customs clearance; Liquor board placed the product is placed at orders for the supplier board warehouse
Graph 1: The process of importing distilled spirits and beer. Source: Based on best practices in British Columbia and Ontario.
Interesting practice – LCBO – Liquor Control Board of Ontario – The LCBO establishes sales targets for all products based upon annual sales contribution levels by product category or grouping. All products are expected to meet or exceed sales targets, and suppliers or agents are accountable for achieving sales targets. For new products, sales targets will be specified in the Notice to Purchase. Failure to meet sales targets within the time frames required by the LCBO may lead to delisting by written notice.5 1.1.2. Importance of Hiring an Agent Being a supplier's agent requires extensive resources, as agents are responsible for marketing, promoting and sales distribution of products they represent. Agents need to spend time and resources making sure customers choose their products. LCBO Product Management Policy and Procedures contains the list of agent’s duties:
• Making applications to sell products to the liquor board;
• Ensuring supplier information is accurate and provided in a timely fashion;
5 LCBO PRODUCT MANAGEMENT POLICY & PROCEDURES • Receiving samples from suppliers that will be forwarded to the liquor board as part of the application process;
• Liaising with suppliers regarding packaging and pricing;
• Determining participation in the liquor board merchandising programs;
• Executing supplier advertising, public relations, and other promotional campaigns;
• Liaising with liquor board store managers regarding product knowledge and promotional activities.6
Basically, the agent functions as the main representative of the product in a province and is required to act on behalf of the supplier in most cases. The liquor board typically can provide a list of registered agents upon request of a supplier, but if none of the agents fit a supplier’s needs and requirements there is a way to register a new agent. Searching for a local agent willing to represent the product in a specific province and taking the agent through the registration process requires additional work. 1.1.3 Market trends: Beer General Beer Market
Operating revenues in the retail beer, wine, and liquor industry, which is 99.1% reliant on sales, grew over the last 10 years.7 The remaining 0.9% includes commissions, manufacturing sales, labor revenues, revenues from rental and leasing, and so on. Operating revenues reached $18.9 billion in 2012, up from $18.4 billion in 2011. Sales increased from $13.1 billion in 2003 to $18.7 billion in 2012, representing almost 43% growth.
Expenses also increased during the same period, from $9.3 billion in 2003 to $13.1 billion in 2012. (The structure of expenses is represented in the table below.)
Expenses Value in $ billions
Expenses out of revenues ranged from 70.9% in 2003 to 69.3% in 2012, e.g. retail stores have on average a 30% retail margin. This should be taken into account by Alaska distilleries when pricing vodka and beer for export to Canada, as it is important to have a competitive price at local markets.
In Canada, chain stores are the primary way of selling beer, wine, and vodka, which represents 89.7% of total revenues generated in the industry, with 10.3% generated by non-chain stores. In the last 10 years
6 LCBO PRODUCT MANAGEMENT POLICY & PROCEDURES 7 Beer, Wine and Liquor Stores. Retrieved from https://www.ic.gc.ca/app/scr/sbms/sbb/cis/revenues.html?code=44531&lang=eng#rdp4. Retrieved on 03.15.2015. the share of non-chain stores was decreasing (in 2003, 89.3% of revenues in the sector were generated by chain stores, and 10.7% by non-chain stores.)8
Beer is one of the most popular alcoholic beverages in Canada. In 2015, revenues from beer sales are projected to reach $5.7 billion with an annual growth rate equal to 1.8%, 85% of which was domestically produced.9 The beer market in Canada continues to grow, but growth rates have been decreasing in recent years, as the wine industry continues to grow. Wine is the main substitute to beer in Canada and therefore intense competition exists between these two products. Based on IBIS World research, the beer market in Canada is highly-regulated and highly-concentrated. Industry revenue is forecast to expand at 0.7% five- year annualized rate, reaching $5.9 billion by 2020.
Since nearly every province regulates and distributes beer through provincial liquor control boards, regulatory costs associated with establishing a new microbrewery are far greater for Canadian breweries than for US breweries.10 This has allowed greater competition in the marketplace, and a wave of newly- launched US microbreweries, adding competition to the market. In Canada consumers traditionally place a high value on locally-brewed craft beer, although the novelty of Alaska brands may allow craft beer from the state to compete with Canadian brands.
Beer Purchasing Habits
In recent years, the Canadian beer market has seen a shift away from traditional light and premium beer brands, though they still currently represent the majority of sales generated by the industry’s largest brewers. However, consumers are increasingly electing to buy less beer in exchange for higher-quality brands, or in some cases reducing purchases of alcohol.11 A decrease in alcohol consumption in the last five years (1% per year) was another factor contributing to declining industry growth.
Canadian consumers are primarily interested in craft and premium beer, although beer has been increasingly perceived as less healthy than wine and spirits in recent years. Revenue is projected to experience a modest increase of 0.5% in 2016, as marketing spending by major companies bolsters industry performance. Marketing is one of the largest expenses for local breweries. Key players in the market, such as Anheuser-Busch InBev (AB InBev) and Molson Coors, use sophisticated marketing tools including high-profile celebrity endorsements, major advertising campaigns, novel packaging materials, and vintage logos.
According to statistics from the Brewers Association of Canada, 48% of domestic beer is sold in bottles. During the past five years, however, IBISWorld observed a shift away from bottled beer consumption. As a result, this segment has contracted. Brewers Association statistics show that about 44% of beer is sold in cans, and 8% of domestic beer is sold on tap (draught beer.)
Major market segments include men age 19 to 30 (19.9%), men age 31 to 50 (15.6%), and men age from 51 to 70 (14.3%, please see the graph below).
8 https://www.ic.gc.ca/app/scr/sbms/sbb/cis/revenues.html?code=44531&lang=eng#cn-tphp 9 www.ibisworld.ca/gosample.aspx?cid=124&rtid=101 10 Ibid. 11 www.ibisworld.ca/gosample.aspx?cid=124&rtid=101 Women aged 71 Men aged 71 years years old or older Man aged 19 to 30 old or older 7.90% years old 9.70% 19.90%
Women aged 31 to 50 years old Men aged 31 to 50 10.10% years old 15.60%
Women aged 51 to 70 years old 10.40% Men aged 51 to 70 Women aged 19 years old to 30 years old 14.30% 12.10%
Graph 2: Beer Market Segmentation in Canada, 2015. Source: Based on Data from Statistics Canada.
Beer consumption continues to be male dominated, with men drinking about 59.5% of beer in terms of volume. Because women consume less beer regularly and make up a smaller share of the adult population, they represent a smaller market. Although consumption by women has increased during the past five years, women are estimated to drink 40.5% of beer sold in Canada. Statistics Canada divides the population into three main age groups: 0-14 years old, 15-64 years old, and older than 65 years old. As the largest share of the consumption age fits in the second group (15-64 years old), we can look at the gender structure in this specific group (please see the Graph below.) Based on the data, Ontario had the highest population in 2014 for ages 15 to 64, followed by Quebec, British Columbia, and Alberta (populations are 4,638, 2,805, 1,583 and 1,495 respectively.) The share of male population in the mentioned territories is about 50%. Share of the Population vs. Share in Beer Sales by Province
40% 35% 30% 25% 20% 15% 10% 5% 0%
Share in Total Beer Sales 2013, % Share of Population, %
Graph 3: Share of the Population vs. Share in Beer Sales by Province. Source: Based on Data from Statistics Canada. The largest beer sales are in Ontario (35.20%), Quebec (26.63%), British Columbia (2.79%), and Alberta (12.13%) with total sales around Canada equal to 2.3 million liters in 2013. Among all provinces, Quebec is the one that is “most into beer,” with 23.04% of the population in this province consuming 26.63% of all beer sold in Canada. In Prince Edward Island, Nova Scotia, Manitoba, Yukon, Northwest Territories, and Newfoundland and Labrador, the same tendency exists, but the difference between the share of population and the share of beer sales is less than half a percentage point.
Based on trends identified above it may be recommended to choose Quebec as one of the provinces for beer exports. Canada has historically been a net importer of beer. In the five years leading to 2015, the value of industry imports has increased by an annualized rate of 0.1% to $715.4 million.12 Total imports are expected to increase at an annualized rate of 5% over the next five years, reaching $914 million in 2020. Premiumization, the prevailing trend of consumers purchasing premium products, is also expected to lead to increased competition from foreign brands, especially as the Canadian Dollar remains strong and makes foreign products relatively less expensive.
12 Breweries in Canada. Retrieved from www.ibisworld.ca/gosample.aspx?cid=124&rtid=101. Retrieved on 03.13.2015. 900,000 800,000 122,496 700,000 600,000 83,613 500,000 400,000 300,000 40,477 43,438 200,000 2,681 262 9,460 2,194 5,336 100,000 8 264 449 174 0
Canadian products, liters Import products, liters
Graph 4: Import vs. Locally Produced Spirits, 2013. Source: Source: Based on Data from Statistics Canada. As a result, imported beer sales have held steady, increasing at a 0.1% annually since 2010, reaching $715.4 million in 2015. Canadian beer imports come from many different countries, though imports from the United States, Netherlands, Mexico, and Belgium consistently rank as the most popular. Brands such as Budweiser, Bud Light, Coors Light, Miller Lite, Heineken, Grolsch, Modelo, Dos Equis, and Duvel are popular and widely-available across Canada.
Due to high transportation costs required to ship a heavy product such as beer, breweries are commonly located near major markets they serve most. As a result, industry establishments are overwhelmingly concentrated in provinces with dense metropolitan areas: Ontario, Quebec and British Columbia. Such areas as New Brunswick, Prince Edward Island, Manitoba, Saskatchewan, and the Yukon do not possess sufficient means of transportation or large enough populations to sustain a significant number of breweries. Consequently, the industry continues to be represented by a large number of small brewers, and a select few major international brewers.
Beer Market Competition
For several years, Anheuser-Busch InBev (AB InBev) and Molson Coors have generated the overwhelming majority of industry revenue. That is expected to continue in 2015.13 Merger and acquisition activity by the two companies is expected to limit new entrants to the industry, causing the number of enterprises to grow only marginally during the five years leading to 2015, with a 1.3% annualized rate reaching 216 companies. These major companies are particularly pressured because they depend on high-volume sales of their respective flagship value products -- Budweiser and Molson Canadian -- in which consumers have demonstrated declining interest. Due to economies of scale that come with major brewing operations across the country, the industry’s largest players have accumulated tremendous market share by spreading fixed costs across numerous facilities.
13 Breweries in Canada. Retrieved from www.ibisworld.ca/gosample.aspx?cid=124&rtid=101. Retrieved on 03.13.2015. Foreign investment over the past decade led to fundamental restructuring of the industry in the form of intense consolidation and rising market share for international beverage companies.
Major imported brands such as Heineken present the largest source of competition to domestic brewers. Because the brewing industry produces many types of beer that cater to a wide range of customers, small- scale breweries often emphasize seasonal flavors, limited-edition styles, and new brands rather than competing exclusively on price. Therefore, industry competition is based primarily on brand, quality, and pricing. Consumers show significant loyalty to beer brands, making it difficult for new entrants to capture market share from established brands. Competition for brand loyalty has intensified on a regional level, and as a result many regional players have aggressively sought to expand their geographic market reach. Competition has also increased with the rise of craft brewing in the past five years. International competition is expected to continue growing over the next five years. Imports rose during the five years leading to 2015, as consolidation among the industry’s largest beer brands compelled consumers to increase purchases of major foreign brands. 1.1.4. Market Trends: Distilled Spirits General Market Trends
The distilled spirits industry is ranked second after breweries in market volume in Canada, and it historically has served as a major contributor to the nation’s economy. While Canada is known as a producer of distinct high-quality whiskey, at the same time, it is in one of the main importers of whiskey. In 2012, whiskey imports to Canada totaled approximately $169 million, and experienced a slight increase to $177.8 million in 2013. With this figure, Canada boasts 1.66% of the total world whiskey import. Canada takes second place in global vodka imports after the United Kingdom, reaching a total import value of $140.8 million. In 2013, however, Canada experienced a 5.7% decrease in vodka imports. Canada also stands as the third largest world importer of gin: volume in 2012 and 2013 reached $30.1 and $36.5 million respectively, which was roughly 4.1% of world gin imports in 2013. Even though Canada stands in a solid worldwide position as an importer of gin, this market is still relatively small in comparison to the vodka and whiskey import markets (please see graph below).
As a whole, sales of spirits accounts for approximately one-quarter of overall alcoholic beverage sales in Canada in recent years. Although vodka has gained popularity recently, whiskey has consistently proven to be the most popular spirit for consumption in Canada. $1.4 billion of whiskey was sold in 2012, which represents 27.3% of the overall spirit market in Canada. Vodka sales for the same period were around $1.3 billion, with 35.2% of overall sales volume being imported and 64.8% produced locally. Flavored vodkas in 2013 accounted for 7.2% of sales, similar to its share in the previous year.14 Overall, whiskey and vodka collectively accounted for more than half of Canada’s spirit sales. The market for other spirits is small, but other spirits continue to compete and may present some niche opportunities for Alaskan producers. American and Irish whiskies, including bourbon, are a generational drink preference.15
14 http://www.ginvodka.org/factsheets/Vodka_Market_Global_Picture.asp 15 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Overview%20of%20the%20Wine%20and%20Spirits%20 Sector%20in%20Canada%20_Ottawa_Canada_8-26-2013.pdf $200,000,000 4.00%
$180,000,000 3.50% $160,000,000 3.00% $140,000,000 $120,000,000 2.50% $100,000,000 2.00%
$80,000,000 1.50% $60,000,000 1.00% $40,000,000 $20,000,000 0.50% $0 0.00% Vodka Whisky Gin
2012 Dollar Amount 2013 Dollar Amount 2013 Share in World Import, %
Graph 5: Distilled Spirits Import in Canada, 2012-2013 Source: Based on UN Comtrade Database.
Canada is a key partner for vodka trade with the United States: in 2013, 24.82% of Canada’s vodka imports came from the US. The main contributing factors for US performance are popularity of US distilled spirits in Canada, and the free trade agreement between two countries which helps keep prices competitive with local products. The US also accounted for 20.67% of whiskey imported to Canada in 2013. The US takes second place among whiskies trade partners, behind the United Kingdom (72.34% of import to Canada comes from UK.) Gin does not have a strong position, with the US providing less than 1% of imports.
45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
Share in Total Spirits Sales, % Share of Population, %
Graph 6: Share of the Population vs. Share in Spirits Sales by Province Source: Based on Statistics Canada.
Ontario is home to the largest sales volume of distilled spirits in Canada (89,017 thousand liters), followed by Quebec (28,772 thousand liters), British Columbia (36,738 thousand liters) and Alberta (27,157 thousand liters). At the same time, if comparing it to the share of each province’s population out of total Canadian population, it is noticeable that British Columbia is among the provinces where share of population is lower than the share of spirits sales. It means this province is “more into spirits” than any other. In Ontario, Saskatchewan, and some other smaller provinces there is the same trend, although the difference between share of spirits sales and share of population is less than 2 percentage points.
Import vs. Locally Produced Spirits, 2013 100,000 90,000 80,000 70,000 30,753 60,000 50,000 40,000 30,000 12,171 11,286 10,928 20,000 1,006 2,266 2,860 2,177 10,000 253 466 106 123 8 0
Canadian products, liters Import products, liters
Graph 7: Import vs. Locally Produced Spirits, 2013 Source: Based on Statistics Canada.
Distilled Spirits Purchasing Habits
The distilled spirits market can be dissected in a number of ways to determine purchasing habits of typical Canadian consumers. One Canadian Club Whiskey senior brand manager describes a typical whiskey customer in Canada: “The Canadian Club drinker is typically 25 to 30 years old, more likely male, and they don’t take themselves or life too seriously. They have a good social network and are out a lot.”16 Taking into account all spirits, the primary market includes Canadians from two age groups: 18-35 and 55-64.
Around 12.49% of the population falls into the group “male aged from 18 to 35 years old,” while only 6.61% falls into the group “male aged from 55 to 64 years old.” The total share of both is 19.1%, equal to 6.7 million potential distilled spirits consumers.
Canadian distilleries are focusing on a new generation of whiskey drinkers – millennials who are the “demographic cohort” reaching adulthood in the 2000s. People from this generation are ready to try new products.17 Therefore, innovations in tastes and flavors are welcome not only for whiskey but for all
16 Getting into the Spirit. Retrieved from http://www.drinkstrade.com.au/ContentFiles/Documents/Drinks%20Trade/Public/Library/reports/spirits/Issue%2 017%20Jun- Jul%2010%20Getting%20into%20the%20spirit%20In%20Focus%20Whisky%20and%20Bourbon%20reports.pdf. Retrieved on 04.29.2015. 17 http://beverageworld.com/articles/full/16573/dram-right distilled spirits. With this in mind, Alaska whiskey and vodka distilled in a variety of ways and with traditional and creative flavors may have a greater chance for success within this demographic.
According to the “Spirits Industry in Canada” report, in the past six months, of the population drinking spirits, 10.4% consumed 1-2 drinks per month, 11.8% consumed 3-5 drinks per month, and 5.7% consumed 6-9 drinks per week. 8.8% have 10 or more drinks per month.18
Distilled Spirits Market Competition.
Canadian distillery operations, especially whiskey, have traditionally enjoyed a positive worldwide reputation for quality. Canadian beverage alcohol plants have sufficient size to access competitively- priced inputs such as corn, rye, distiller malts, and packaging. This allows internationally-competitive on production costs. Most large Canadian distilleries are owned by foreign investors who keep production in Canada to capitalize on the reputation. Overall industry production is highly-concentrated, with three companies holding 68.2% of the total market: Pernod Ricard, Diageo, and Bacardi Limited. Recent years have seen an increase in the number of niche distilling companies.19
At the local market there are several main sources of competition: craft and micro distilleries, large-scale distilleries, and competition from other imports.
Between major and craft distilleries combined, the Canadian distilling industry generates nearly $1 billion each year.20 Craft and micro distilleries are getting more and more popular in Canada, with most located in British Columbia. Despite strict regulations and harsh taxes that make it difficult for craft distilleries to profit, Canada’s craft spirit industry is growing.21 More than 25 craft distilleries launched in the past decade.
As mentioned before, there are three main players in the Canadian distilled spirits market:
Pernod Ricard, which owns Absolut Vodka, Malibu and Beefeater: 29.2% of the market. Diageo Plc, owner of Smirnoff, Captain Morgan, Crown Royal and Tanqueray: 29.1% of the market. Bacardi Limited, owning Bacardi, Grey Goose and Bombay Sapphire: 9.9% of the market.
Another major player is Beam Inc., which owns Jim Beam, Maker’s Mark, and Canadian Club, accounting for 4.1% of the market, with 27.7% of the market left for all other producers and imported products.22
Pernod Ricard is a decentralized French company manufacturing spirits such as Chivas, Ballantine's, Jameson, Havana Club, Martell, Beefeater, Ricard, Malibu, and Absolut.18 Decentralization plays a unique role, enabling diversity among various markets.
18 The Spirit Industry in Canada. Retrieved from https://laurenarmstr.files.wordpress.com/2014/04/the-spirit- industry-final.pdf. Retrieved on 04.29.2015. 19 http://www.agr.gc.ca/eng/industry-markets-and-trade/statistics-and-market-information/by-product- sector/processed-food-and-beverages/the-canadian-distillery-industry/?id=1171995761751#prov 20 “The Canadian Distillery Industry.” Agriculture and Agri-Foods Canada. Agriculture and Agri-Foods Canada, 29 March 2013. Web. 12 April 2014. 21 http://www.microdistillerybooks.com/2014/2014CanadianFactSheet.pdf 22 The Spirits Industry in Canada. Retrieved from https://laurenarmstr.files.wordpress.com/2014/04/the-spirit- industry-final.pdf. Retrieved on 04.29.2015. Diageo is a British company manufacturing spirits for brands such as Smirnoff, Johnnie Walker, Captain Morgan, Baileys, J&B, Jose Cuervo, Tanqueray, Buchanan, Windsor Premier, Ketel One, Ciroc, Bushmills, and Crown Royal.20 As the leading premium spirits business in the world by volume, net sales, and operating profit, the company relies on brand equity, large-scale operations, innovation, and an array of products at various prices.21
Bacardi Limited is the world’s largest privately-owned spirits label. Headquartered in Bermuda, brands include Bacardi rum, Grey Goose vodka, Dewar's Blended Scotch whiskey, Bombay Sapphire gin, Eristoff vodka, Cazadores tequila, and Martini vermouth. 22 The company is aligned with organizations and causes campaigning against under-age and irresponsible drinking and environmental leadership. 25
Beam Inc., known earlier as Fortune Brands, is an American company producing spirits for such brands as Jim Beam, Maker’s Mark, Sauza, Courvoisier, Canadian Club, Teacher’s, Laphroaig, Knob Creek, Basil Hayden’s, Kilbeggan, Cruzan, Hornitos, EFFEN, Pucker, Skinnygirl, Sourz Liqueurs, Pinnacle, and Calico Jack.26
Among Canadian distilleries, there are:
Forty Creek Distillery (Ontario, whiskey production); Urban Distilleries (British Columbia, vodka, gin, whiskey production); The Liberty Distillery (British Columbia, whiskey, gin, vodka production); Glenora Distillers (Nova Scotia, whiskey production); Highwood Distillers (Alberta, gin, rum, vodka, whiskey production); 66 Gilead Distillery (Ontario, gin, rum, whiskey production); Hiram Walker & Sons distillery (Ontario, vodka, whiskey and gin production); Ampersand Distilling Company (British Columbia, gin); Ironworks Distillery (Nova Scotia, rum, vodka, apple brandy); LB Distillers (Saskatchewan, rum, gin, vodka); Central City Brewers & Distillers (British Columbia, vodka and whiskey production); Okanagan Spirits Craft Distillery (British Columbia, gin, whiskey, vodka production); Prince Edward Distillery (Prince Edward Island, vodka); Deep Cove Brewers and Distillers (British Columbia, vodka and gin production); Still Waters Distillery (Ontario, whiskey and vodka); Yukon Shine Distillery (Yukon, gin and vodka production); Distillerie Fils du Roy (New Brunswick, gin production);2324
The last source of competition is from other imported brands, represented in the graph below. The largest volume of vodka imports by dollar is from the US, which is the source of the most popular brands. French vodka is second, responsible for 24.75% of imports, and is followed by imports from Sweden, 21.52%. Based on this graph alone, it is evident that competition in the vodka market is intense.
23 https://www.lib.uwo.ca/news/business/2012/05/03/canadiancraftdistillers.html 24 http://www.whiskyportal.com/region.asp?RegionID=13&Region=Canada Vodka Import Volume, % Whiskies Import Volume, Gin Import Volume, %
Netherl % Nether Other FinlandLatvia ands Other Japan lands Partners 4.22% 3.99% 3.18% Other USA Ireland 0.81% 0.17% Partners 0.22% Partners 3.22% 24.82% 6.29% Russian France Spain Federati 0.84% 0.24% on USA 20.67 USA United 6.24% United % 0.93% Kingdom Kingdom Poland 97.01% 8.07% 72.34% Sweden France 21.52% 24.75% Graph 8: Vodka, Whiskey and Gin Import Volumes, 2013. Source: Based on UN Comtrade Data.
As for imported whiskey, 72.34% comes from the UK. Imports from the US place second, with a 20.67% share. Taking into account that Canadian whiskey amounts to one-quarter of the distilled spirits market, there is intense competition in this segment as well. The situation with gin is more complicated, as almost 100% of imports come from the UK. It could be extremely difficult for US gin to increase its 0.92% share.
For new entrants to the distilled spirits market, it is relatively easy to enter the market from a financial standpoint, but competition with established major players could prove difficult.44 While there is little regulation preventing creation of a new brand, distribution challenges and the small number of weak players makes it difficult to compete with larger brands. With steady market growth and undifferentiated products, new entrants to the market can easily create a business but may struggle to seriously compete with large players for a significant market share.25 1.1.5 Market associations and guilds For current research, several associations and guilds focused on distilled spirits and beer industries were located, including Spirits Canada, Beer Canada, and the Brewers Association of Canada
Spirits Canada or Association of Canadian Distilleries is located in Ottawa.26 The group was formed in 1947 to provide an exchange of views and recommendations affecting the distilled spirits industry. The purpose is to protect and advance interests of members and to promote well-being and economic health of the Canadian distilling industry in Canada and globally.
Beer Canada is a voluntary trade association that advocates on behalf of its members, makers of Canada’s most popular alcohol beverage – beer.27 The association works with members, governments, stakeholders, and the public to improve the marketplace for beer. The organization prepares monthly and annual reports on the Canadian beer industry.
25 The Spirit Industry in Canada. Retrieved from https://laurenarmstr.files.wordpress.com/2014/04/the-spirit- industry-final.pdf. Retrieved on 04.29.2015. 26 http://www.acd.ca/ 27 Beer Canada. Retrieved from http://www.beercanada.com/about-us. Retrieved on 04.29.2015. Brewers Association of Canada is a voluntary association of 22 brewers from coast to coast that represents 97% of beer brewed in Canada. The association was established in 194328 and primarily focuses on providing networking opportunities to members and collecting information about events associated with beer production and sales.
These organizations can potentially be useful for Alaska producers to identify potential business partners. Another main point of contact for every US company that plans to export alcohol drinks to Canada are the Alcoholic Beverage Control boards in each province.29 Canada’s 13 provinces and territories have a unique liquor board or commission, all of which are committed to working together through the Canadian Association of Liquor Jurisdictions (CALJ) on liquor-related issues of common interest.30 1.1.6 Local industry regulations Information provided in this chapter is based on US Department of Treasury, Alcohol and Tobacco Tax and Trade Bureau data. Nine major topics should be covered when talking about export and import regulations in Canada for distilled spirits and other alcoholic beverages.
Labeling requirements.
Canadian packaging and labeling requirements for wine, beer, and distilled spirits are administered under Canada’s "Food and Drugs Act and Regulations and the Consumer Packaging and Labelling Act and Regulations."31 In addition to general requirements for most foods and beverages, there are regulations for alcoholic drinks covering name and container rules. Quebec has additional labeling requirements, mainly that information be listed in French, or in both French and English.
In either case, labels must include the following:
Common name of product (i.e. vodka, beer, whiskey, etc.; must be shown in type of at least 1.6 mm in height). "Imported for" or "Imported by" followed by Canadian dealer’s name and address: as mentioned above, it should be imported to Canada through liquor board or commission in the province where the product will be sold/consumed. Net quantity in metric units of volume (milliliters, liters), must be shown on the main label, clearly and prominently displayed, easily legible and in distinct contrast to any other information on the label. Alcohol by volume declaration: Beverages containing 1.1% or more alcohol must declare the amount of alcohol by volume, shown as "X % alcohol by volume" or "X % alc./vol." Country of origin (e.g. Product of US) Ingredients – this is required only for "unstandardized" alcoholic beverages, i.e. those beverages for which there is no standard in Division 2 of the Canadian Food and Drugs Regulations. Division 2
28 Brewers Association of Canada. Retrieved from http://www.brewerydb.com/guild/U5SjmY. Retrieved on 04.29.2015. 29 Alcohol and Tobacco Tax and Trade Bureau. Retrieved from http://www.ttb.gov/wine/state-ABC.shtml#Canada. Retrieved on 04.29.2015. 30 Canadian Association of Liquor Jurisdictions. Retrieved from http://www.calj.org/. Retrieved on 04.29.2015. 31 http://www.hc-sc.gc.ca/fn-an/legislation/acts-lois/act-loi_reg-eng.php, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/01248.html includes ethyl alcohol and alcohol with flavoring, as well as grain, malt and molasses spirits.32 Examples of "unstandardized" alcoholic beverages include products such as sake, cocktails (manhattans, martinis), etc. Durable life date (if shelf life is 90 days or less.)33
There are special voluntary labeling requirements for genetically-modified products.34
Standards for container sizes.
There is a standardized container size for wine but not for beer, vodka, or whiskey.35
Required documents.
The following is a typical list of documents that may need to be presented for the imported product to be released from customs.36 The exporter should take into account that this list is only for informational purposes. It is always better to contact the export and import broker to confirm requirements.
1. Two copies of the cargo control document, which may be obtained from the carrier or freight forwarder;
2. Two copies of an invoice which helps support the value of the goods and includes the following:
Information regarding the importer and exporter. A description and value of the goods. The country of origin and the destination of the goods. The currency of settlement. A Canada Customs’ invoice or a commercial invoice containing all the required information is necessary for goods with a value of $1600 or greater. An additional copy of the invoice is required in cases where the importer or broker intends to transmit the final accounting data through Customs Automated Data Exchange (CADEX).
3. Two copies of a completed B3 form. A third copy is required if the shipment is valued over $1,600 US dollars;
4. Permits, certificates, licenses, or other documents that are required by the Canada Customs and Revenue Agency;
Taxis and tariffs.
Based on the customs tariff, T2015, the United States is subject to one of the most-favored nation tariffs, Mexico-US Tariff and US Tariff. MFN Tariff is applied to a country with the most-favored nation status and access to the lowest possible tariff for products imported to Canada, US Tariff and Mexico-US Tariff as
32 http://laws-lois.justice.gc.ca/eng/regulations/C.R.C.,_c._870/page-55.html#h-52 33 http://www.ttb.gov/itd/canada.shtml 34 http://www.inspection.gc.ca/food/labelling/food-labelling-for-industry/method-of-production- claims/eng/1389379565794/1389380926083?chap=3 35 http://www.inspection.gc.ca/food/labelling/food-labelling-for- industry/alcohol/eng/1392909001375/1392909133296?chap=4 36 http://www.ttb.gov/itd/canada.shtml part of the North American Free Trade Agreement.37 The agreement created duty-free access for most beverage alcohol products imported to Canada from the US.
Besides customs duty, the Canadian government levies the following taxes on alcoholic beverage products:
Excise Tax: levied on all alcohol beverage products. GST: Goods and Services Tax levied at 5% of retail price at the federal level. Provincial Sales Tax, collected on behalf of the provinces.
The federal excise tax on alcohol, however, is imposed on all products regardless of origin. As of April 15, 2008, the excise tax is CAD $0.3122/liter for beer, and CAD $11.69/liter of pure alcohol (for spirits.)38
The Goods and Services Tax applies to alcohol imported into Canada. In addition to the rate stated above, provinces have their own sales tax, and rates can vary from province to province. Please see the table below for Provincial Sales Tax (PST), GST, and Harmonized Sales Tax (HST).39
Province Tax type (GST, Province Rate Canada Rate Total PST, HST) Alberta GST 0% 5% 5% British Columbia GST+PST 7% 5% 12% Manitoba GST+PST 8% 5% 13% New-Brunswick HST 8% 5% 13% Newfoundland HST 8% 5% 13% and Labrador Northwest GST 0% 5% 5% Territories Nova Scotia HST 10% 5% 15% Nunavut GST 0% 5% 5% Ontario HST 9% 5% 14% Prince Edward HST 9% 5% 14% Island Quebec GST+QST 9.975% 5% 14.975% Saskatchewan GST+PST 5% 5% 10% Yukon GST 0% 5% 5% The North America Free Trade Agreement (NAFTA) created duty free access for most beverage alcohol products imported into Canada from the US. Therefore, customs duty does not apply. The federal excise tax on alcohol, however, is imposed on all products regardless of origin 1.1.7 Recommendation on ways to advertise Alaska distilled spirits Based on research and information presented in the previous chapters, these are some of the recommendations on how to introduce Alaska beer and distilled spirits to Canadian markets:
37 http://www.cbsa-asfc.gc.ca/publications/dm-md/d11/d11-4-19-eng.html 38 http://laws-lois.justice.gc.ca/eng/acts/E-14.1/page-101.html#h-70 39 http://www.calculconversion.com/sales-tax-calculator-hst-gst.html Choose a target province in Canada. Based on the research in this document Quebec could be a good start for beer exports, as the province is the most into beer among all regions. The Quebec liquor board, Societe Des Alcools Du Quebec, Montreal, is one of the leaders in beer import in Canada. British Columbia is more into spirits than any other province. The Liquor Distribution Branch of BC in Vancouver is a leading vodka importer. Large markets like Quebec and British Columbia are also good because of the availability of well- developed infrastructure. Distilled spirits and beer are heavy products to deliver, and this expense will be a main factor in determining a product’s price, so it would be useful to target large markets where economy of scale can be reached through large deliveries and sales. It is necessary to contact the provincial liquor board for instructions and a list of agents and distributors, which makes the process easier. Once you have a contract with a local agent, required to operate legally, the agent is dealing with the liquor board directly to follow the importation processes and to promote products. An agent can represent only one product or product line. As wine is the primary competitor for beer, it may be useful to strategically compete against the product. This could be achieved by offering a broader selection of choices for consumers so they could experiment with different tastes. Sweeter flavors may also help attract female consumers. According to a survey conveyed by the Wine Market Council, consumers value beer that pairs well with food. From this standpoint it may be helpful to find local products and craft a beer with that in mind specifically. Canadian consumers prefer high-quality brands to traditional light beers. As such, the novelty of Alaska brands may allow beer from the state to compete with local Canadian brands. A focus on high-quality raw materials – pure glacier water, for example – could also help. Men age 19 to 30 are the main consumers of beer in Canada (19.9%), followed by men age 31 to 50 (15.6%), and then men age from 51 to 70 (14.3%.) Appealing to the lifestyle of professionals who have attained career success or are at the beginning of a career but have high expectations and good opportunities may be one tricks to develop a customer base. Whiskey is a generational drink in Canada and is the most popular distilled spirit. American whiskey and vodka are popular in Canada, and flavored types of vodka are gaining popularity. Accordingly, Alaska flavored vodka could be a good option for the local market. Alaska distilled spirits will likely be perceived as a novelty in Canadian markets, and it may be useful to focus on millennials as the generation most likely to try something new and experiment with different tastes and drinks. For distilled spirits it would be preferable to focus on vodka or whiskey, but not gin (please see industry statistics in chapter 1.1.4.) Alaska breweries and distilleries can advertise online as a way of connecting with consumers, millennials in particular, as they spend a lot of time online for work, news, and to interact with friends. This could be a good starting point for promotional efforts, targeting a specific age group and residents of a chosen province. Promotion of the product through websites of provincial liquor boards could be effective as well, as it is the first place distributors and agents look. The Liquor Control Board of Ontario utilizes a website, which not only shows products they sell, but also has advertising for new products, promotions, and discounts. They also have a magazine called Food & Drink which advertise new products. 1.2 Republic of Korea 1.2.1 Distribution channels Based on local regulations, only licensed companies are allowed to import alcoholic beverages. The most up-to-date list of licensed importers is available upon request from the US Embassy in Seoul. Following a request by UACED, the list was provided May 5, 2015 (please see Appendix 1.) At that time 118 importers of distilled spirits and 31 importers of beer were licensed, but based on information provided by the embassy, only around 50 maintained an active business. However, Korean importers are generally actively looking for opportunities to bring a new product to market and to build business partnerships with foreign suppliers. Therefore, once contacted directly they would provide in-depth market descriptions and support to a foreign supplier. But it is better to contact the importer directly without using a middle man, even if it is a government agency, as there is a very high chance the importer will not communicate with a third-party due to lack of trust.
Importers are allowed to sell to wholesalers and retailers directly, but they are also required to have official permits to trade alcoholic beverages. Importers can sell to such retailers as liquor stores, large supermarkets, liquor retailers, chain stores, restaurants, cafes, bars, and hotels. However, importers rely heavily on wholesalers when distributing to smaller retailers or regional markets (please see the distribution chain graph below.)40
In addition, liquor retailers are not allowed to buy alcoholic beverages from off-trade liquor retailers. Off- trade accounted for 51% of beer distributed in 2011 in terms of volume, although it should be pointed out that off-trade consumption has shown higher growth than on-trade in recent years.41 On-trade, or on- premise, refers to sales made in pubs, clubs, restaurants, and other retailers selling alcohol for consumption within the venue. Off-trade or off-premise refers to businesses selling alcohol for consumption elsewhere.42 The former was showing slower growth, mostly because of the economic situation in Korea, and reduction in corporate spending on entertainment and business dinners.
40 Beer Import to the Republic of Korea. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Beer_Seoul%20ATO_Korea%20-%20Republic%20of_2-7- 2013.pdf. Retrieved on 05.06.2015. 41 Ibid. 42 The Affordability of Alcoholic Beverages in European Union. Retrieved from http://ec.europa.eu/health/archive/ph_determinants/life_style/alcohol/documents/alcohol_rand_en.pdf. Retrieved on 05.15.2015.
Graph 9: Distribution Channels. Source: Based on “Beer Import to the Republic of Korea” Report.
Among all retail channels, hypermarkets are the most popular for buying alcoholic beverages, primarily because of lower per unit prices. This channel holds 38.6% of sales. Convenience stores are, however, increasing in popularity as an easily-accessible source to purchase impulse alcoholic products.43 According to Euromonitor, alcoholic beverage sales through hypermarkets will continue to grow (please see below the structure of the off trade sales.)
Off-Trade Sales of Alcoholic Beverages by Distribution Format in 2011 Supermarkets Food/drink/tobacco 14.90% specialists 2.10%
Small Grocery Retailers: Independent small Hypermarkets grocers 38.60% 28.80%
Small Grocery Small Grocery Retailers: Retailers: Convenience Forecourt retailers Stores 0.10% 15.50%
Graph 10: Off-Trade Sales of Alcoholic Beverages by Distribution Format, 2011. Source: Based on “Consumer Trends: Wine, Beer and Spirits in South Korea,” prepared by Agriculture and Ari-Food Canada.
43 Consumer Trends: Wine, Beer and Spirits in South Korea. Retrieved from http://www.agr.gc.ca/eng/industry- markets-and-trade/statistics-and-market-information/by-region/asia-pacific/consumer-trends-wine-beer-and- spirits-in-south-korea/?id=1410083148704. Retrieved on 05.07.2015. Rather than contacting Korean importers remotely, sometimes it could be a good idea to meet in-person, as it is culturally more appropriate for business partnerships to stem from personal contacts and relationships. One way to meet importers in-person is to join trade delegations to Korea organized by various organizations promoting American exports, such as State Regional Trade Groups, State Departments of Agriculture, and USDA Cooperators like the US Dairy Export Council.
Another option would be visiting specialized international exhibitions and trade fairs. One of the industry’s most popular fairs in Korea is the Seoul International Wine and Spirits Expo (SIWSE), which is the only exhibition in Korea dedicated specifically to wines and spirits. The fair attracts around 30,000 visitors per year and gives participants unique networking opportunities, as it attracts a number of potential importers or distributors.44 The fair is hosted by the Korea Wines and Spirits Association, which has leading importers as members and is run by Korea International Exhibition Co. Ltd.45
The Seoul Food and Hotels fair is another option, visited by almost 41,000 people in 2013. The fair is held 20 minutes from the heart of Seoul in suburban Goyang and attracts professionals from all over the world.46 The alcoholic beverages industry is among those represented at the exhibition, which allows US exporters to meet potential distributors, retailers, and industry buyers from catering and hospitality businesses.47 1.2.2 Beer Market Trends According to a report prepared by the USDA Foreign Agriculture Service, Korea is a leading market for alcoholic beverages. Drinking is appropriate in business and social settings. In terms of volume, Korean adults on average consumed 86 bottles of beer (43 liters per capita) in 2011. Consumption per capita in the US was around 76.7 liters the same year. However, beer remains one of the most consumed alcoholic drinks in Korea.
Value of Consumption*
Source: Based on USDA Foreign Agriculture Service Report on Beer Market in South Korea. * KRW were converted to UDS based on 07.22.2015 currency exchange rate 1 KRW=0.000864 USD. Health concerns among the general public, particularly women, for alcoholic beverages generate strong demand for products with less alcohol. That trend could be beneficial for beer producers.
44 http://siwse.com/ 45 Seoul International Wine and Spirits Expo. Retrieved from http://www.winebusiness.com/industryevents/?go=eventDetails&event_id=10957. Retrieved on 05.06.2015. 46 Seoul Food and Spirits. Retrieved from http://www.seoulfoodnhotel.co.kr/2009_IFIES_allworld/index.asp. Retrieved on 05.04.2015. 47 Seoul Food and Hotel 2015. Retrieved from http://www.seoulfoodnhotel.co.kr/2009_IFIES_allworld/index.asp. Retrieved on 05.06.2015. Beer imports to Korea in 2012 equaled $73.6 million, 0.6% of the world’s total beer import. Despite a challenging economic environment, Korea’s beer imports have continued solid growth in recent years primarily because of increased consumer demand for higher-quality products and increasingly diversified tastes. The value of imports went up in 2013 to $89.7 million, with an increased share in world imports of 0.83%. 7.5% of beer imports to Korea come from the US: American whiskey and wine accounted for 21% of alcohol supplied to the country. Beer and soju (come mostly from local processors and together accounted for 74% of the total alcoholic beverages supplied.48
Premium alcoholic beverages are becoming more popular in Korea. The recent signing of free trade agreements with the United States (March 2012) and the European Union (July 2011) eliminated or reduced tariff duties and helped boost wine and whiskey sales.49 The cuts were beneficial for Korean customers, allowing price reductions for imported alcohol drinks of almost 10%. Reduction of import tariffs on American beer under Korea-United States Free Trade Agreement (KORUS FTA, implemented in March 2012) should generate new opportunities for American products as well.50
Other 20.32% Japan 31.16%
USA 7.53%
Ireland 8.06% Netherlands 12.63% China Germany 8.20% 12.10%
Graph 11: Beer Import to South Korea, 2013. Source: Based on UN Comtrade Database. Full realization of the impact of tariff reductions is typically at least a five-year process, and the US presently holds sixth place in import volume to Korea. Japan has been the main beer importer for several years, responsible for 31.16% of imports in 2013. It is followed by Netherlands (12.63%), Germany (12.10%), China (8.20%) and Ireland (8.06%).
48 Beer. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Beer_Seoul%20ATO_Korea%20- %20Republic%20of_2-7-2013.pdf. Retrieved on 05.07.2015. 49 Consumer Trends: Wine, Beer and Spirits in South Korea. Retrieved from http://www.agr.gc.ca/eng/industry- markets-and-trade/statistics-and-market-information/by-region/asia-pacific/consumer-trends-wine-beer-and- spirits-in-south-korea/?id=1410083148704. Retrieved on 05.07.2015. 50 Beer. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Beer_Seoul%20ATO_Korea%20- %20Republic%20of_2-7-2013.pdf. Retrieved on 05.07.2015. However, major competitors have outgrown the United States in recent years in large part by offering more diversified products. From 2008 to 2012, Japan and the Netherland’s beer exports to Korea grew 546% and 62% in value respectively, while United States exports declined 8%.51
2010.5 2011 2011.5 2012 2012.5 2013 2013.5 $8,000,000 12.00% $7,000,000 10.00% $6,000,000 8.00% $5,000,000 $4,000,000 6.00% $3,000,000 4.00% $2,000,000 2.00% $1,000,000 $0 0.00% 2011 2012 2013 Import of beer from the US, $ Share of the US Import, %
Graph 12: Beer Import from the US, 2011-2013. Source: Based on UN Comtrade Data. Nevertheless, from 2011 to 2013, absolute dollar amount of beer imports from the US increased 20.63%, with the US share of imports decreasing from 9.58% in 2011 to 7.53% in 2013 (please see graph above.)
Market Competition
The Korean beer market is a duopoly dominated by the historically leading local brewers: Oriental Brewery Company, Ltd., and Hite-Jinro Co., which together hold nearly the entire market, with around 1.8 billion liters of beer locally-brewed in 2011. The market power of these two companies increased due to regulations in the brewing industry which existed before 2011. Based on the regulation all brewers were obligated to have enough capacity to brew well over 1 million liters at a time. Smaller producers were allowed to sell beer only on their own premises beginning from 2002, and as a result many micro-brewery pubs have been established in metropolitan markets. After 2011 anyone with the capacity to produce 120,000 liters could apply for a wholesale license.52
Oriental Brewery was acquired by Interbrew (now Anheuser-Busch InBev) in 1998 and was again sold to an international investment fund in 2009. As a result the company now brews and bottles Budweiser and Hoegaarden beer in Korea for local distribution in partnership with Anheuser-Busch InBev. In addition, it imports products under the AB InBev portfolio into Korea, including Bud Ice, Beck’s, Stella Artois, Leffe and Löwenbräu.53 On the other hand, Hite beer is locally-owned and is part of the largest alcoholic beverage company in Korea, Hite-Jinro Co. The other popular brands are mainly produced by two
51 Beer. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Beer_Seoul%20ATO_Korea%20- %20Republic%20of_2-7-2013.pdf. Retrieved on 05.07.2015. 52 Fiery Food, Boring Beer. Retrieved from http://www.economist.com/news/business/21567120-dull-duopoly- crushes-microbrewers-fiery-food-boring-beer. Retrieved on 07.05.2015. 53 Beer. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Beer_Seoul%20ATO_Korea%20- %20Republic%20of_2-7-2013.pdf. Retrieved on 05.07.2015. companies: Cass, OB, Cafri (all from Oriental Brewery Company Ltd.) and Hite, Max, d, S, Stout (Hite-Jinro Co.)
Among imported brands popular in Korea are Budweiser, Hoegaarden, Bud Ice, Beck’s, Stella Artois, Leffe and Löwenbräu, Suntory, Kirin. According to The Economist, most beer brands in Korea cost approximately the same 1,850 won ($1.70) per 330 ml can. Therefore, in order to be price competitive Alaska beer should try to fit in this price category and try other marketing tools to promote products.
As for foreign competition, Japan has been the leading supplier of imported beer to Korea since 2010, mainly by developing strategic partnerships with major Korean food and beverage companies. Current partnerships include Hite-Kirin, Oriental Brewery-Suntory, and Mail Dairy-Sapporo. In 2013, Japan took 31.16% of all beer imports to Korea, followed by Netherlands (12.63%), Germany (12.10%), China (8.20%), Ireland (8.06%), and US (7.86%.)
Consumption habits
The legal drinking age in Korea is 19, and there were an estimated 19.7 million males in the population and 20.05 million females in 2012 based on the OECD StatExtracts Database.54 There was 2.85% population growth for people 19 or older compared to 2011.
12,575,116 Over 40 11,617,050
1,958,174 35-39 2,048,758
1,951,410 30-34 2,052,179
1,663,674 25-29 1,810,080
1,567,566 20-24 1,777,680
331,868 19 years old 375,070
Female Male
Graph 13: Population by Age Group and Gender, 2012. Source: Based on OECD StatExtracts Database.
According to a study conducted by The Australasian Professional Society on Alcohol and other Drugs published in December 2011, the average number of drinks consumed per occasion, whether business or social, by Koreans was 5.96 for women and 8.58 for men. Cocktails and low-alcohol content drinks are popular with young adult consumers aged 20 to 34, especially women. Young adult consumers composed
54 OECD StatExtracts. Retrieved from https://stats.oecd.org. Retrieved on 05.05.2015. 29% of the population in 2012. In addition, marketers suggest the popularity of dark beer and stout is going to increase in the next five years.55
According to a Euromonitor report, it is expected that young adults will continue to represent one of the largest consumer groups in Korea. Therefore, it is expected that the preference for cocktails and low- alcohol beverages will continue. Experiments with taste and innovative approaches to spirits and beer production is greatly appreciated by this consumer group.
While drinking is on the decline among the elderly population for health concerns, the market continues to gain a sizable number of new consumers from young and female populations.56 Among the older generation, the husband usually earns a salary while the wife stays home. But the latter is usually entrusted to make purchasing decisions, so US beer producers may wish to take into consideration these family roles when marketing to Korean consumers.57 1.2.3 Distilled Spirits Market Trends Marketers point out that Korea is a highly polarized market for distilled spirits. Consumption is heavily skewed to low-price products led by soju, Korea vodka, as well as to premium products led by Scotch whiskey.
Soju is the most popular Korean alcoholic beverage, especially among businessmen, and is one of the main drivers of spirit sales in the country.58 Similar to vodka, Soju is made from grain or sweet potatoes, has alcoholic content of 15.5%, and is popular in a variety of flavors available at the local market. The alcohol content of Soju has declined in response to consumer demand. Soju is the cheapest hard liquor sold in markets (retailing less than $1 per typical 330ml bottle) and processors switch among different sources for the base liquor for a lower cost. As a result, Korean soju processors import a significant volume of high- alcohol spirits each year.59
Whiskey was the best-selling distilled spirit in 2012 based on “Euromonitor International,” with total sales volume equal to 4,075 million liters, valued at $196 million. This category is projected to decline by 2016, but whiskey will remain the largest group in the market (please see the table below.) White spirits rank as the second largest group, with a sales volume equal to 376.4 million liters in 2012 and the dollar value of sales equal to $12.2 million. This category is projected to grow 35% by 2016.
55 Consumer trends: Wine, Beer and Spirits in South Korea. Retrieved from http://www.agr.gc.ca/eng/industry- markets-and-trade/statistics-and-market-information/by-region/asia-pacific/consumer-trends-wine-beer-and- spirits-in-south-korea/?id=1410083148704. Retrieved on 05.07.2015. 56 Beer, Republic of Korea. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Beer_Seoul%20ATO_Korea%20-%20Republic%20of_2-7- 2013.pdf. Retrieved on 07.05.2015. 57 Doing Business in South Korea. Retrieved from http://www.export.gov/southkorea/doingbusinessinskorea/index.asp. Retrieved on 05.05.2015. 58 Consumer Trends: Wine, Beer ad Spirits in South Korea. Retrieved from http://www.agr.gc.ca/eng/industry- markets-and-trade/statistics-and-market-information/by-region/asia-pacific/consumer-trends-wine-beer-and- spirits-in-south-korea/?id=1410083148704. Retrieved on 05.07.2015. 59 Distilled Spirits. Republic of Korea. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Distilled%20Spirits_Seoul%20ATO_Korea%20- %20Republic%20of_1-2-2013.pdf. Retrieved on 08.05.2015. Distilled Spirits Market Sales (historic and forecast), million liters
Source: Euromonitor International, 2012
Despite a challenging economic environment, Korea maintained relatively stable imports of distilled spirits in recent years largely due to strong demand for soju, which is blended in part from imported high alcohol spirits.60 Korea relies heavily on imports for premium distilled spirits, which can be divided into two main categories: products with alcohol strength of 80% or higher (HS2207.10: high alcohol ingredient spirits), and products of alcohol strength less than 80% (HS2208: consumer oriented spirits.)61
In 2012, Korea ranked the tenth importing market of whiskey by value, taking 1.79% of global imported whiskey. A year later, the country ranked twelfth with 1.73% of world imports. The Scotch Whiskey Association, a trade association for the industry in the United Kingdom (UK), signed a Free Trade Agreement in 2011 with Korea that eliminated Korea's 20% import tariff on spirits. 62 In spite of this change, the share of UK whiskey imports was decreasing from 2011-2013, from 97.06% to 96.35%. The absolute dollar amount of imports from the UK was decreasing as well.
The situation with imports from the US is slightly different. Based on 2013 data, the US is the second largest supplier of whiskey to Korea after the United Kingdom. The recent signing of the US-Korea Free Trade Agreement (implemented in March 2012) eliminated all tariffs on American whiskey imports to Korea.63 Stable supply of imported whiskey leads to a decrease in local production of this distilled spirit. Based on 2011 data, imported whiskey accounted for 91% of total supply.
60 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Distilled%20Spirits_Seoul%20ATO_Korea%20- %20Republic%20of_1-2-2013.pdf 61 Ibid. 62 http://www.agr.gc.ca/eng/industry-markets-and-trade/statistics-and-market-information/by-region/asia- pacific/consumer-trends-wine-beer-and-spirits-in-south-korea/?id=1410083148704 63 http://www.agr.gc.ca/eng/industry-markets-and-trade/statistics-and-market-information/by-region/asia- pacific/consumer-trends-wine-beer-and-spirits-in-south-korea/?id=1410083148704 $5,700,000 3.50% $5,650,000 3.00% $5,600,000 2.50% $5,550,000 $5,500,000 2.00%
$5,450,000 1.50% $5,400,000 1.00% $5,350,000 0.50% $5,300,000 $5,250,000 0.00% 2011 2012 2013
Import of whisky from the US, $ Share of the US Import, %
Graph 14: Whiskey Import from the US, 2011-2013. Source: Based on UN Comtrade Database.
Looking at vodka import trends, there was a significant increase in the absolute dollar amount imported after 2012: from $80,909 in 2011 to $570,380 in 2013. The share increased from 1.92% to 6.11%.
$600,000 7.00%
$500,000 6.00%
5.00% $400,000 4.00% $300,000 3.00% $200,000 2.00%
$100,000 1.00%
$0 0.00% 2011 2012 2013
Import of vodka from the US, $ Share of the US Import, %
Graph 15: Vodka Import from the US, 2011-2013. Source: Based on UN Comtrade Database.
The situation with gin is not as good as with vodka and whiskey. In spite of the fact that the absolute dollar amount of the import was increasing on average by 20% annually, the share of US exports to Korea compared to overall imports was decreasing: 5.29% in 2011 to 4.43% in 2013. Imports from the UK increased during the same time period. Gin Import from the US, 2011-2013 $90,000 5.40%
$80,000 5.20% $70,000 5.00% $60,000 $50,000 4.80% $40,000 4.60% $30,000 4.40% $20,000 $10,000 4.20% $0 4.00% 2011 2012 2013
Import of gin from the US, $ Share of the US Import, %
Graph 16: Gin Import from the US, 2011-2013. Source: Based on UN Comtrade Database.
The free trade agreement led to an increased US share of total Korean imports, from 2.47% in 2011 to 3.04% in 2013. The absolute dollar amount increased from $5,693,860 in 2011 to $6,286,679 in 2013, taking into account gin, vodka, and whiskey.
Consumption Habits
Korean consumers typically prefer soju and Scotch whiskey, with soju being one of the most popular local drinks and whiskey among the most popular imported premium-quality drinks. In terms of volume, each Korean adult consumed on average 81 bottles of soju (330 ml bottle), and 10 bottles of whiskey (1 liter bottle) in 2011. Beer and soju together, mostly from local processors, accounted for 74% of the total alcoholic beverages supplied in terms of value. The same year imported products, mainly whiskey and wine, accounted for 21% of the products supplied.64
However, according to a report prepared by USDA Foreign Agricultural Service, distilled spirits are expected to diversify into a wider range of products in the coming years, providing American suppliers with new opportunities.
When looking at other distilled spirits such as brandy and Cognac, sales have been steadily declining as spirits fall out of favor with consumers, with one exception: super-premium brandy products, such as Cognac XO, will continue to be popular with middle-aged Korean consumers.65 Market Competition: Distilled spirits.
There are two main sources of competition: local producers of distilled spirits, and competition from imports. Korea is one of the leading markets for distilled spirits. In 2013, total imports of the main distilled
64 Ibid. 65 Consumer Trends: Wine, Beer and Spirits in South Korea. Retrieved from http://www.agr.gc.ca/eng/industry- markets-and-trade/statistics-and-market-information/by-region/asia-pacific/consumer-trends-wine-beer-and- spirits-in-south-korea/?id=1410083148704. Retrieved on 07.05.2015. spirits – vodka, whiskey and gin – was more than $196M, with imports from the US equal to $7.6M. Looking at each product separately, the US was the fourth-largest importer of vodka to Korea (with 6.11% share of total), second-largest importer of whiskey (3.04% of total) and second-largest importer of gin (4.43% of total). The United Kingdom is the United States’ main competitor in whiskey and gin sales, and at the same time Sweden was the primary source of vodka provided to Korea in 2013, responsible for almost 63% of imports and followed by France (9.58%) and United Kingdom (6.13%).
Vodka Import Volume, % Whiskey Import Volume, Gin Import Volume, % Finland Poland Other %Partners Canada Other Philippines Italy Other 1.48% 0.12% 0.09% Sweden USA Japan 1.34% 1.93% 5.72% 6.11% 0.94% USA 0.10% Russia China Spain 3.04% France 4.36% France 0.30% 1.85% 1.21% USA United 9.58% 4.43% Kingdom 6.13% United United Kingdom Kingdom 96.35% Sweden 87.13% 62.91% Graph 17: Vodka, Whiskey and Gin Import Share, 2013. Source: Based on UN Comtrade Database.
A 20% import tariff on American bourbon whiskey was eliminated under KORUS FTA in March 2012. This duty reduction and diversifying tastes of Korean consumers were among the factors that led to an increase in imports of distilled spirits from the US, from $5.8M to $7.6M, or 32.45%, and it also increased the share of the US in total imports of vodka, whiskey, and gin.
Imports of other consumer-oriented distilled spirits such as vodka and liqueurs are likely to grow continuously in the coming years as Korean drinkers seek to experience more diverse products and tastes.66 According to USDA Foreign Agricultural Services report, young Korean consumers who have been exposed to wider international cultures through foreign education and travel have different tastes from older generations, and they are ready to experiment with drinks.
Among local producers, there are several leaders holding most of the market:
Jinro Co Ltd. – 47.7% of the market in 2011. Lotte Liquor BG Co. Ltd. – 16.7% of the market in 2011. Muhak Co. Ltd. – 9.2% of the market in 2011. Kumbokju Co. Ltd. – 8.1% of the market in 2011. Bohae Brewery Co. Ltd. – 6.5% of the market in 2011. Daesun Distilling Co. Ltd. – 5.0% of the market in 2011.67
66 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Distilled%20Spirits_Seoul%20ATO_Korea%20- %20Republic%20of_1-2-2013.pdf 67 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Distilled%20Spirits_Seoul%20ATO_Korea%20- %20Republic%20of_1-2-2013.pdf Jinro Co. Ltd. Is a leading local producer of soju, holding 47.7% of the distilled spirits market. The company also produces whiskey and wine. Jinro soju is known by the brand name Chamisul. Jintro’s brand Chamisul Fresh accounted for 20.2% of distilled spirit sales in 2011, Chamjinisulro – 26.8% of the market.
Lotte Liquor BG Co. Ltd. specializes in production of various beverages including soju, rice wine, fruit wine, liquor, wine, and medicinal liquor. Choumchorum is the main brand produced by this company, and it accounts for 16.1% of the distilled spirits market.
Muhak Co., Ltd. manufactures, exports, and sells liquor in Korea and holds 9.2% of the market. It manufactures and sells rice and fruit wines, diluted distilled liquors, distilled water, and other beverages.68
Kumbokju Co. Ltd is one of the main exporters and manufacturers handling mainly Korean distilled liquors since establishment in 1957. This company produces Charm Soju, which accounted for 8.1% of the market in 2011.
Bohae Brewery Co. Ltd. was founded in 1950 and produces and sells liquor products in Korea and internationally. One of the most popular brands produced by this company is Maechuisoon, which accounts for 0.2% of the distilled spirits market.
Daesun Distilling Co. Ltd. was founded in 1930 and now produces products with asparagine for use in alcoholic beverage products. It held 5% of the distilled spirits market in 2011. 1.2.4 Market associations and guilds
There are several professional associations in Korea. Academies, Internet-based communities, periodic journals, and nonprofit organizations are actively engaging with general consumers, and exert significant influence on consumption trends.69
Korea Wine & Spirits Importers Association (KWSIA) is an organization that hosts the Seoul International Wine and Spirits Expo (SWSExpo) – the only exhibition in Korea dedicated to wines and spirits. SWSExpo automatically brings international exporters face-to-face with qualified importers and buyers in a single venue. KWSIA members transact 90% of the wines and spirits imported into Korea.70
Korea Alcohol & Liquor Industry Association (KALIA) was formed in 1980 in order to represent manufacturers from the alcoholic beverages industry, promote healthy drinking culture, and to support international cooperation. The organization provides technical support to newly-organized and mature liquor production companies, helps with policy and regulatory understanding, and promotes cooperation between producers, government and other stakeholders.71
The Whiskey Society of Korea does not have much information in English, and the website is in a process of construction as the society is still relatively young, but for US whiskey exporters it may be useful to get
68 Muhac Co. Ltd. Retrieved from http://www.bloomberg.com/research/stocks/snapshot/snapshot.asp?ticker=033920:KS. Retrieved on 05.08.2015. 69 Distilled Spirits, South Korea. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Distilled%20Spirits_Seoul%20ATO_Korea%20- %20Republic%20of_1-2-2013.pdf. Retrieved on 08.05.2015. 70 Wine international. Retrieved from http://www.wineinternationalltd.com/newsletter1/. Retrieved on 05.08.2015. 71 KALIA. Retrieved from http://www.kalia.or.kr/introduction/k_biz.html. Retrieved on 05.08.2015. in contact with this organization, as it may be a good source of information about possible local partnerships, market trends and certified importers.72 1.2.5 Local industry regulations
Required Documents
Main documents required for import procedures include:
Invoice Bill of Lading, or Airway Bill Packing List Certificate of Origin Statement (needed to qualify for preferential tariff rates) List with names of all ingredients, including percentage of major ingredients Processing Method Certificate of Production Date73
Import procedures
This chapter is based on information provided on the US International Affairs Division website and should be verified with Korean importers by Alaska businesses when getting in contact directly. As previously mentioned, Korean importers usually deal with foreign suppliers without any third-party. Importers must obtain an import certificate prior to importation of alcoholic beverages by following these steps:74
1. The importer should file an “Entry for Foods” form with the head of the Regional Food and Drug Administration (this may be done no less than 5 days prior to the arrival of shipment) along with required documents listed above. 2. There are a variety of different inspections that may be conducted by the KFDA (Korean Food and Drug Administration) – these include a document inspection, visual inspection, laboratory inspection, incubation test, and a random inspection. The laboratory inspection includes sampling of the product and a chemical inspection in KFDA’s laboratories. It could be a good idea for the importer to go through the “good importer practice” or register as a good importer to ensure that safety guarantee outcomes are achieved. By designating importers as a "good importer" and entrusting them with the first line of responsibility for the safety of food imports,75 it will allow the importer to be exempt from random sampling inspections in future. 3. First-time importers of alcoholic beverages (i.e. the product has not been imported into Korea before) must submit two sample bottles of each product to the KFDA inspection office, which will complete a chemical safety inspection. Once this process is complete, the product may enter the country with only a visual inspection or inspection of pertinent documents. However, products contained in subsequent shipments must be identical to the original samples submitted in their label, product name, alcohol percentage, ingredients, and net volume. Random chemical inspections may also apply, although if the importer is registered as a “good importer,” the company is exempt from random inspections.
72 The Whisky Society of Korea. Retrieved from http://www.whiskysociety.or.kr/. Retrieved on 05.05.2015. 73 http://www.ttb.gov/itd/korea.shtml 74 Korea. Retrieved from http://www.ttb.gov/itd/korea.shtml. Retrieved on 05.11.2015.
4. KFDA also inspects the product with regard to a “Conformity Assessment” process which evaluates the compliance of the imported product with the Korean Food Code, Food Additive Code, and Korean labeling regulations (set out in the Korean “Labeling Guide.”) 5. If the product complies with the above process, the importer is issued an import certificate, which may be used to clear future shipments of the inspected product. If the product does not comply, the importer will be notified and may choose to destroy the product or return it to the country of origin. In some cases, such as labeling violations, the importer may be able to reapply for inspection once the violations have been corrected. 6. Effective March 15, 2012, a Certificate of Origin Statement is needed to claim preferential duties for imported products of US origin. Per the Korea-US FTA, to qualify for reduced preferential duties, a certificate of origin statement must be presented to Korean Customs Service.
The Korean Customs Service uses an electronically-based import clearance system, which allows the importer to complete declarations electronically as soon as five days prior to the arrival of a shipment by carrier or one day prior to a shipment arriving by air (this process is referred to as a “prior-entry import declaration.”)76 The importer should file import declaration in the customs office located in the region where the shipment will arrive; the declaration form should include documents mentioned in the Required Documents section. Once the shipment has arrived, it should be stored at a bonded storage location while customs verifies the importer has completed all certifications, until customs finally accepts the declaration if all requirements have been met. Then the importer is granted a certificate proving the declaration has been accepted.77 Any applicable customs duties should be paid at this time along with taxes or other tariffs (please see Taxes and Tariffs section of the current document.) The shipment may then be released from a bonded storage location and enter free circulation, but both the importer and exporter should keep in mind that all imported alcoholic beverages are subject to random inspections by the Korea Food and Drug Administration (KFDA) once they have entered Korean Customs, unless the importer is already registered as a “good importer.”
Food Inspection
According to Food Import and Export Statistics, Korea's dependence on imported food is 65% of total calories consumed; more than 80% of processed food ingredients are imported.78 As it is expected that the import of food and beverages is going to be constantly increasing, Korea Food and Drug Administration (KFDA) tries to ensure safety of imported products. Imported food inspection is performed by the Regional Food and Drug Administration (Seoul, Incheon, Busan, Daegu, Daejeon, Kwangju), which tests to determine if products fit relevant criteria and standards for raw materials and food additives, food labelling standards, and requirements for hazardous substances such as pesticides, veterinary drugs, and so on. Based on data provided on the Korea Food and Safety Bureau website, from 2007 to 2011 between 0.34% and 0.54% of imported food and beverage inspections rejected the import of specific applications. In 2011, 13,212 cases out of 312,724 were rejected.79
76 South Korea. Retrieved from http://www.ttb.gov/itd/korea.shtml. Retrieved on 05.11.2015. 77 Ibid. 78 Imported Food Safety. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Beer_Seoul%20ATO_Korea%20-%20Republic%20of_2-7- 2013.pdf. Retrieved on 05.11.2015. 79 Ibid. The following chapter is based on information provided by USDA Foreign Agricultural Service in “Beer” and “Distilled Spirits” import reports, so there may be direct quotes from the reports.
The first commercial shipment of a new-to-market product is required to go through a detailed inspection, which under Korean law should take no longer than 10 business days, but in practice it may take longer. For a detailed inspection, importers are required to submit one sample bottle of each product to the inspection authority along with detailed product information such as major ingredient list and processing flow chart.80 Once detailed inspection on the first shipment confirms no potential health concerns, subsequent shipments of the same product will be subject to visual (checking the document) inspections, which usually take no longer than three working days provided that the product in the subsequent shipment is identical to the product in the first shipment with respect to label, product name, ingredients, and net volume.81 1.2.6 Export/import tariffs and Pricing In spite of the fact that Korea and the US on March 15, 2012 signed a Free Trade Agreement, beer and distilled spirits are still subject to a conventional tariff. These tariffs are scheduled to reduce yearly and phase out completely, with the beer tariff ending in 2018, and tariffs on distilled spirits in 2016.82
According to KORUS FTA, the US-Korea Free Trade Agreement, the following tariffs and taxes should be applied in 2013:83
Source: Based on Data at US Commercial Services, FTA Tariff Tool Home.
In addition to tariffs, liquor tax, education tax and value added tax are applied to imported beer and distilled spirits.
The following example illustrates the effects of import tariff and local taxes on a bottle of $10 (CIF import value) American bourbon whiskey (0% tariff), imported into Korea:
80 Beer, republic of Korea. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Beer_Seoul%20ATO_Korea%20-%20Republic%20of_2-7- 2013.pdf. Retrieved on 05.11.2015. 81 Distilled Spirits, Republic of Korea. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Beer_Seoul%20ATO_Korea%20-%20Republic%20of_2-7- 2013.pdf. Retrieved on 07.22.2015. 82 Korea. Retrieved from http://www.ttb.gov/itd/korea.shtml. Retrieved on 05.1.2015. 83 KORUS FTA. Retrieved from http://www.atoseoul.com/fta/fta_page2_final.asp. Retrieved on 05.04.2015. A. CIF Invoice Value - $10.00. B. Import Tariff – A x 0% = $0.00. C. Liquor Tax – (A+B) x 72% = $7.20. D. Education Tax – C x 30% = $2.16. E. Subtotal - (A+B+C+D) = $19.36. F. Value Added Tax – E x 10% - $1.94. G. Handling fees for customs clearance – A x 8% = $0.80. H. Total cost of bourbon whiskey upon customs clearance – (E + F + G) = $22.1 per bottle.84
In addition to the actual price of the product at customs clearance, US exporters should take into account possible mark-ups at different levels of the retail and wholesale trade:
Importer mark-up (the profit made by a seller, i.e. selling price minus the cost for a product): o Importer selling to large-scale retail store: Mark-up 15-40% o Importer selling to wholesaler: Mark-up 15-20% o Importer selling to luxury hotel: Mark up 40-50% Wholesaler selling price to liquor store: Mark up 15-30% Retailer mark-ups: o Hypermarket stores’ mark-up: 20-30%; o Liquor stores’ mark-up: 30-40%; o Luxury hotels’ mark-up: 50-200%.85
1.2.7 Packaging and labeling rules Package and label design is very important in Korea, and suppliers should consider developing a new design that can attract Korean consumers while taking into account addition of the Korean language onto the label.86 Liquor labeling is administered by Korea Tax Administration and must include:
Product name; Country of origin; Product type (e.g. whiskies, vodka, beer, gin); The name, address and phone number of the importer; Importer’s business license number; Date of bottling; Alcohol percentage and product volume; Tolerance of +/- 0.5% with regards to accuracy of alcohol content; Location where product may be exchanged or returned in the instance of a defective product; Instructions for storage, if applicable;
84 Distilled Spirits, Republic of Korea. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Beer_Seoul%20ATO_Korea%20-%20Republic%20of_2-7- 2013.pdf. Retrieved on 07.22.2015. 85 Korea. Retrieved from http://www.ttb.gov/itd/korea.shtml. Retrieved on 05.1.2015. 86 Republic of Korea Exporter Guide. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Exporter%20Guide_Seoul%20ATO_Korea%20- %20Republic%20of_12-16-2014.pdf. Retrieved on 05.11.2015. Mode of distribution, must specify one of the three: "Discount store sale only," "Restaurant sale only," or "Sale for home use only" (taxes on beverages vary depending on the mode of distribution); 87 Beer should have information about shelf life or best before date, while other alcoholic beverages are excluded from this requirement;88 All whiskey is mandated to have a Radio Frequency Identification (RFID) tag since October 1, 2012, which are provided by National Tax Office authorized vendors. It should be loaded with detailed product information and attached to the bottle by the importer before being distributed so distributors and consumers are able to scan the RFID tag and verify authenticity;89 The use of a photo or a picture of fruit or ingredients on the product label for products that contain only synthetic flavors is prohibited, effective April 30, 2010.90
Soju, beer, whiskey, and brandy should state “for home use” or “for large-size stores” on the label. These liquors must also carry a statement on the main label or supplementary label that reads: “Not allowed to be sold in restaurants and bars” (please see the table below.)
Source: USDA Foreign Agriculture Service Report “Republic of Korea Food and Agricultural Import Regulations and Standards” 1.2.8 Recommendation on ways to market Alaska distilled spirits Based on research and information presented in previous chapters, these are some recommendations for how to introduce Alaska beer and distilled spirits to Korea:
1. It is necessary to find a local importer licensed to purchase products from foreign suppliers, and contact the company directly without using any middleman (even if it is just a translator.) It is recommended to set a personal contact before getting started with business issues. Personal partnerships are highly valued in Korea, and one way to meet importers in-person is to join trade delegations to Korea organized by various organizations promoting American exports or to visit specialized international exhibitions and trade fairs (please look for examples in chapter 1.2.1. and 1.2.4.) Visiting Korea a couple of times or inviting a potential importer to visit production facilities in Alaska could be effective methods of building a sense of trust as well. It will help to warm up the business relationship and can potentially lead to a better contract since Koreans value personal involvement and almost familial relations with a business partner.
87 Beverage Alcohol Labeling Requirements by Country. Retrieved from http://www.icap.org/Table/AlcoholBeverageLabeling, Retrieved on 05.11.2015. 88 Republic of Korea Food and Agricultural Import Regulations and Standards. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Food%20and%20Agricultural%20Import%20Regulations %20and%20Standards%20-%20Narrative_Seoul_Korea%20-%20Republic%20of_12-31-2014.pdf. Retrieved on 05.11.2015. 89 Distilled Spirits. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Distilled%20Spirits_Seoul%20ATO_Korea%20- %20Republic%20of_1-2-2013.pdf. Retrieved on 05.11.2015. 90 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Food%20and%20Agricultural%20Import%20Regulations %20and%20Standards%20-%20Narrative_Seoul_Korea%20-%20Republic%20of_12-31-2014.pdf 2. Taking into account a FTA signed by the US and Korea in 2012, it is a good time for Alaska alcoholic beverages to enter Korean market. As UN Comtrade data shows, the share of US products in imports to the country varies from 3 to 8% depending on the beverage. Among all products, whiskey and vodka showed upwards trend with an increase in share in Korea imports. This trend identify growing interest to the US products and may be utilized by Alaska distilleries as a good starting point. 3. Taking into account popularity of Soju, Alaska distilleries can try to diversify the vodka market, offering different flavors and lower alcohol content. The latter is important for Koreans, considering the tendency to lean towards healthier drinks and tradition to drink in average 5-8 drinks per occasion. 4. Another way to capitalize on Soju popularity is to build partnerships with local Soju producers, who purchase foreign high-alcohol content beverages to blend it to Soju drink with different flavors. In this case it is important to offer high-quality product at the least possible price as Soju itself is considered relatively inexpensive drink. It gives the US producers additional target market. 5. Another trend that is beneficial for both Alaska distilleries and breweries is that more and more consumers prefer cocktails in exchange of pure drinks. Adding to this young professionals, ready to experiment with tastes and a variety of flavors, it may be useful to offer cocktails with beer and Alaska distilled spirits, positioning it as a new taste for Korean market and getting attention of consumers, interested in experimenting with drinks. 6. As consumers demand premium quality product, it may be useful to highlight in marketing campaigns that Alaska products are made from high-quality raw-materials like glacier water and organic barley, wheat, and wild berries picked in Alaska. 7. Beer is relatively inexpensive product in Korea, therefore Alaska breweries should pay close attention to being price competitive (please see for details chapter “Market competition.”) 8. One way to penetrate the Korean market is involvement in local industry associations by purchasing a membership. US governmental agencies located in Korea (e.g. US Commercial Service) are usually good resources for identifying customs clearance issues and local industry regulations. 9. The target market depends on the type of alcohol subject to export. Even if Korean vodka, soju, is one of the most popular distilled spirits in the local market, whiskey is one of the most popular foreign spirits, with US whiskey being widely sold and advertised. Gin is usually used in cocktails and together with whiskey is growing in popularity among the female population. Whiskey though is mostly preferred by males under 34 years old and is perceived as an elite alcoholic drink. American beer is popular in Korea and is one of the most imported alcohol beverages. 10. As for advertising, it is notable that many Koreans, especially millennials, are actively engaging in online social media like Facebook and Twitter, various Internet communities, and interacting with friends on blogs. These online marketing tools could be good for promotion of Alaska-based alcoholic beverages. 1.3 Germany Although the United States does not have a free trade agreement with Germany or the European Union, negotiations of the Transatlantic Trade and Investment Partnership (T-TIP) with the EU are in place. The objective of the cooperative agreement is to help shape high-standard, broad-based regional pacts, and to unlock opportunities for American businesses through increased access to European markets.91 1.3.1 Distribution channels Few German retailers import products directly from other countries. Most food retailers purchase from central buyers or distributors specialized in imports. Wholesalers typically specialize in product groups or imports from a specific country. These specialized importers have in-depth knowledge of importing requirements, such as the necessary product certificates, labeling and packaging requirements, and may take care of shipping, customs clearance, warehousing, and distribution of products within the country.92 There is no license needed for production, wholesale, or retail sales of alcoholic beverages. It is possible to work through a distributor of alcoholic beverages in Germany or any other country within the European Union, but in this case the US supplier should be aware that food imports from other countries within the European Union fall under the "free movement of goods" principle, which means products imported by other EU-countries may be brought into Germany even if they violate German food laws. If this is the case, importers must obtain a permit from the Federal Office for Consumer Protection and Food Safety (BVL) to sell the product in Germany.93 The US Commercial Service in Germany recommends US exporters find a local representative to effectively place and promote their products.94
German food and beverage retail chains are consolidated in most cases but remain relatively diversified in comparison with many other European countries. Overall, the top five German retailers (Edeka, Rewe Group, Schwarz Group, Aldi Group, and Metro Group) have a market share of 73% of the entire German retail market.95 According to the Germany Market Overview report, Edeka, Rewe Group, and Schwarz Group, operate chains in more than one type of distribution channel, including supermarkets and discounters, which are the most popular in Germany. In 2013, the market share of discounters was around 41%, hypermarkets and large-scale superstores (≥2,500 sqm) around 28% of the market, and conventional supermarkets (1,000-2,499 sqm) have a market share of 16%.96 1.3.2 Distilled spirits market trends. Based on a USDA report, Germany is a net importer of all major categories of food and beverage products as the food market is heavily dependent on imports to meet customer demands. Last year Germany imported $59.6 billion of consumer-oriented agricultural products including alcoholic beverages such as distilled spirits. By value, about one-fourth came from the Netherlands, 11% from Italy, and 9% from France. After Switzerland and Turkey, the US is the third-largest non-EU supplier of consumer-oriented
91 Transatlantic Trade and Investment Partnership. Retrieved from https://ustr.gov/ttip. Retrieved on 05.13.2015. 92 Germany Exporter Guide 2014. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Exporter%20Guide_Berlin_Germany_12-15-2014.pdf. Retrieved on 05.13.2015. 93 Germany Exporter Guide 2014. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Exporter%20Guide_Berlin_Germany_12-15-2014.pdf. Retrieved on 05.13.2015. 94 Ibid. 95 Market Overview. Retrieved from http://www.gtai.de/GTAI/Content/EN/Invest/_SharedDocs/Downloads/GTAI/Industry-overviews/industry- overview-food-beverage-industry-en.pdf. Retrieved on 05.17.2015. 96 Market Overview. Retrieved from http://www.gtai.de/GTAI/Content/EN/Invest/_SharedDocs/Downloads/GTAI/Industry-overviews/industry- overview-food-beverage-industry-en.pdf. Retrieved on 05.17.2015. agricultural products.97 The German retail food market is attractive for US exporters because of its saturation, strong competition, and low prices.
Germany’s food and beverage industry generated a production value of EUR 175.2 billion ($192.4 billion based on currency exchange rate as on 07.24.2015) in 2013 and is the fourth-largest industry sector in Germany. This sector’s growth was around 4% in 2013 compared to the year prior. The industry is composed mainly of small to medium-sized companies with a total of 6,000 operators employing more than 560,000 people.98
Industry analysts show positive market trends with growing demand for convenience, health, and wellness food products. The domestic food and beverage sector has benefited from the strong German economy (GDP growth rate in 2014 was 1.5%) and low unemployment rate (4.9% in February 2015.) Germany is Europe’s leading alcoholic beverages market: around 16% of alcoholic beverages consumed in Europe are sold in Germany.99 Almost half of the market share is taken by beer and flavored alcoholic beverages followed by spirits with 29% and wines with 23%.
It is worth noting that whiskey in 2013 was around 75% of total distilled spirits imported to Germany. There was 15% growth in imports of this product in 2013 compared with the previous year. Whiskey imports are followed by vodka in dollar amount of sales, taking around 20% of distilled spirits imports in 2013, equal to more than $133 M. Gin is one of the smallest groups of imports among all distilled spirits. In 2013, around 4.8% of total distilled spirits imported was gin.
$600,000,000 80.00%
70.00% $500,000,000 60.00% $400,000,000 50.00%
$300,000,000 40.00%
30.00% $200,000,000 20.00% $100,000,000 10.00%
$0 0.00% Vodka Whisky Gin
2012 Dollar Amount 2013 Dollar Amount 2013 Share in World Import, %
Graph 18: Distilled Spirits Import in Germany, 2012-2013. Source: Based on UN Comtrade Database.
97 98 Industry Overview. Retrieved from http://www.gtai.de/GTAI/Content/EN/Invest/_SharedDocs/Downloads/GTAI/Industry-overviews/industry- overview-food-beverage-industry-en.pdf. Retrieved on 05.17.2015. 99 Ibid. Import trends reveal that the total dollar amount of imported distilled spirits increased from 2011-2013, with a constantly decreasing share of US products from 21.6% to 20.7% over that time frame. Meantime, the dollar amount increased from $134M to $156M, 16.5% growth over the three-year period.
$160,000,000 21.80%
$155,000,000 21.60%
$150,000,000 21.40%
$145,000,000 21.20%
$140,000,000 21.00%
$135,000,000 20.80%
$130,000,000 20.60%
$125,000,000 20.40%
$120,000,000 20.20% 2011 2012 2013
Import of distilled spirits from the US, $ Share of the US Import, %
Graph 19: Distilled Spirits Import from the US, 2011-2013. Source: Based on UN Comtrade Database.
One of the biggest reasons behind the decrease in US share of total imports was a drop in the share of whiskey imports from 29% in 2011 to 27% in 2013. However, the dollar amount of whiskey imports increased by 16%, equal to the growth of total distilled spirits import. During the same period, the UK share increased from 63% to 67%, motivated by increasing popularity of UK whiskey in Germany.
$160,000,000 30.00%
$155,000,000 29.50%
$150,000,000 29.00%
$145,000,000 28.50%
$140,000,000 28.00%
$135,000,000 27.50%
$130,000,000 27.00%
$125,000,000 26.50%
$120,000,000 26.00% 2011 2012 2013
Import of whisky from the US, $ Share of the US Import, %
Graph 20: Whiskey Import from the US, 2011-2013. Source: Based on UN Comtrade Database. Vodka Imports from the US increased from $1.1M in 2011 to $1.4M in 2013, a 0.94% share of the total distilled spirits import. For this group of spirits, both dollar amount and share of the import were increasing over a three-year period.
$1,600,000 0.95% $1,400,000 0.90% $1,200,000
$1,000,000 0.85% $800,000 $600,000 0.80% $400,000 0.75% $200,000 $0 0.70% 2011 2012 2013
Import of vodka from the US, $ Share of the US Import, %
Graph 21: Vodka Import from the US, 2011-2013. Source: Based on UN Comtrade Database.
Gin is the smallest group of distilled spirits imported to Germany and had the share increase from 0.05% to 0.35% from 2011 to 2013 with the dollar amount of imports equal to $126,500 in 2013. This category is growing fast but remains the smallest category of distilled spirits imported from the US. The US is the 11th largest import partner for gin, behind the UK, Netherlands, Spain, Sweden, and other countries.
$140,000 0.40%
$120,000 0.35% 0.30% $100,000 0.25% $80,000 0.20% $60,000 0.15% $40,000 0.10%
$20,000 0.05%
$0 0.00% 2011 2012 2013
Import of gin from the US, $ Share of the US Import, %
Graph 22: Gin Import from the US, 2011-2013. Source: Based on UN Comtrade Database.
Consumption Habits
The drinking age in Germany is 18. In recent years marketers observed increasing demand for wellness, convenience food, and organic products in Germany and the European Union overall that represents a large potential for US companies active in these markets. An aging population is building demand for health and wellness as well as functional food products to prevent or overcome conditions including diabetes, high blood pressure, and cholesterol. This is one reason German consumers are willing to pay more for “sustainable,” “locally-sourced,” “free range,” “natural,” “organic,” “fair trade” and “carbon neutral” products.100 With more than $8.3 billion in 2013 sales, Germany is a frontrunner in production and consumption of organic food products, and the largest market in Europe followed by France ($4.4 billion) and the UK ($2.2 billion). 101 Per capita sales of organic products in Germany was equal to $93.7 in 2013, more than twice the EU average of $44.7.
This trend led to an increase in the number of organic food shops. Around 2,400 shops operate in Germany selling solely organic-produced products. The introduction of the EU-wide organic food logo further eased the import and distribution of organic foods in Germany and other EU member states.102 Companies new to the market can benefit from this trend and offer products unique to the market.
In 2013, German households spent 11.2 billion Euro on alcoholic beverages, with wine and sparkling wine together accounting for 39% of expenditures, followed by beer at 28%, then spirits with 25%.103 Distilled spirits per capita consumption was between 23.8 and 25.1 liters, compared with beer per capita consumption which is steadily decreasing and now equals 106 liters. At the beginning of the 21st century per capita consumption of beer, distilled spirits, and wine in Germany decreased in comparison with the 20th century (see the graph below.)
The fastest-growing categories among alcoholic beverages include beer, mixed drinks, fruit brandies, and alcohol-free beers, although changes in consumer preferences have also led to higher consumption of organic wines, beers, and spirits.104 The alcoholic beverages segment grew 2.8% from 2010-2013 in Germany according to the Market Overview report.
100 Germany Exporter Guide 2014. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Exporter%20Guide_Berlin_Germany_12-15-2014.pdf. Retrieved on 05.13.2015. 101 Market Overview. Retrieved from http://www.gtai.de/GTAI/Content/EN/Invest/_SharedDocs/Downloads/GTAI/Industry-overviews/industry- overview-food-beverage-industry-en.pdf. Retrieved on 05.17.2015. (Euros are converted to USD based on currency exchange rate as on 07.22.2015. 1 Euro = 1.0906 USD) 102 Ibid. 103 Overview of German Wine Sector. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Overview%20on%20the%20German%20Wine%20Sector _Berlin_Germany_2-11-2015.pdf. Retrieved on 05.13.2015. 104 Market Overview. Retrieved from http://www.gtai.de/GTAI/Content/EN/Invest/_SharedDocs/Downloads/GTAI/Industry-overviews/industry- overview-food-beverage-industry-en.pdf. Retrieved on 05.17.2015. 10 9 8.66 8 6.9 7 6 5 4 3.35 2.82 3.05 3 2.35 2 1 0 Beer Distilled Spirits Wine
1985 2003
Graph 23: Alcohol Consumption, liters per capita per year. Source: The affordability of Alcoholic Beverages in European Union. Another trend across the EU is toward more off-trade alcohol consumption in comparison with on-trade consumption. Although there is little research examining this particular question, it is possible that one of the main reasons for the increase in off-trade alcohol consumption is the lower price of alcohol in off- trade retailing.105
Competition
Beverage manufacturing in Germany is highly differentiated with intense competition, although a number of major international players are present. The alcoholic drinks market is diversified, with the top three companies generating one-third of total sales, which makes the German alcoholic beverage market an attractive option for foreign exporters, specifically in niche and value-added product segments.106
As previously mentioned, Germany is a net importer of alcoholic beverages, and therefore the main competition comes from the foreign markets and vendors ready to export products to the European Union in general, and Germany in particular.
Sweden is the main exporter of vodka to Germany, responsible for almost 20% of the import market. The United Kingdom (16.77%) is second, followed by France (15.80%) and Russia (16.82%), although with the latest sanctions there may be a decrease in Russia vodka imports. With proper marketing and export policies, US products could win a substantial market share. Based on the Comtrade database, the US had only 0.94% of import sales to Germany in 2013. Recent data suggests vodka imports from the US to Germany in the last three years increased almost 30%.
105 Ibid. 106 Market Overview. Retrieved from http://www.gtai.de/GTAI/Content/EN/Invest/_SharedDocs/Downloads/GTAI/Industry-overviews/industry- overview-food-beverage-industry-en.pdf. Retrieved on 05.17.2015. Vodka Import Volume, % Whiskey Import Volume, Gin Import Volume, % Ukraine USA Other Canada Other Partners France Other % Netherl USA 2.31% 0.94% 3.40% 0.90% 0.52% 1.50% 1.05% ands 0.35% Sweden Denmark United Poland 0.21% 0.53% 5.32% Kingdom 4.92% Ireland Ireland 16.77% Finland 3.57% 2.59% Spain 5.63% Netherlands 0.83% Netherlands France USA 5.81% 1.62% 27.40% 15.80% United Russia Kingdom United 16.82% 67.40% Kingdom Italy Sweden 87.34% 6.61% 19.85% Graph 24: Vodka, Whiskey and Gin Import Shares, 2013. Source: Based on UN Comtrade Database.
The situation with whiskey is different as the US holds around 27% of imports, behind only the UK (67.40% of the import.) Together sales of distilled spirits from these two countries count around 94% of the total, although the US share was decreasing with increased market share going to the UK. As for gin, the UK remains an absolute leader in imports to Germany over the last several years, holding more than 87% of imports in 2013. The US has only 0.35% of the import, but it has been increasing recently.
Overall the import of distilled spirits from the US has increased almost 16.5% in the last three years, which is partially a result of promotion of US spirits by the Distilled Spirits Council of the US in cooperation with the USDA. Together they conducted promotional campaigns in 15 markets since 2005, including: Germany, China, Russia, Brazil, India, Hong Kong, Korea, Thailand, Vietnam, Singapore, Chile, Bulgaria, Romania, Czech Republic, and Austria.107
There is little information about internal competition among distilleries in Germany, but the main distilleries competing in the market were able to be identified: Schlitzer Destillerie, Blackwood, Blaue Maus, Bayerwald-Bärwurzerei Spezialitäten-Brennerei Gerhard Liebl, Hammerschmiede, Höhler, Black Forest – ROTHAUS, Rabel Berghof, A.Racke & Co. GmbH and others.108 1.3.3 Market trade shows and fairs. Another successful way of finding the right distribution for products of US food and beverage companies is to participate in trade fairs in Germany. Trade shows like ANUGA, Green Week, and the BioFach show have an exceptional reputation among industry experts worldwide; participating in these events facilitates direct contact with German food brokers, importers, and wholesalers.109
107 http://www.discus.org/assets/1/7/Distilled_Spirits_Industry_Briefing_Feb_4_2014.pdf
108 Germany Distilleries. Retrieved from http://www.whiskyportal.com/region.asp?RegionID=27&Region=Germany. Retrieved on 05.18.2015. 109 Germany Exporter Guide. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Exporter%20Guide_Berlin_Germany_12-15-2014.pdf. Retrieved on 05.13.2015. The drinks section of the ANUGA food fair in Germany in 2013 gathered 460 exhibitors from 62 countries, as well as about 74,000 visitors from the retail and out-of-home market, 73% of which are decision makers.110 In 2015, the trade show is planned for October in Cologne, Germany.
International Green Week is another food exhibition taking place in Germany every year and attracting exhibitors from all over the world. It was established in 1926 and in 2015 was held for the 80th time. The IGW is a one-of-a-kind international exhibition for the food, agricultural and horticultural industries, and at the same time functions as the point of origin for the Global Forum for Food and Agriculture (GFFA) with more than 70 departmental ministers.111 This year more than 1,700 products were registered for the exhibition, with around 159 beer brands to be represented and 185 other alcohol beverages. Just one US company is registered in the “Alcoholic Beverages” section.
BIOFACH is scheduled to take place for the 27th year in a row in 2016. The event began with 197 exhibitors in the Ludwigshafen Stadthalle in 1990, when 2,500 visitors attended the "1st European Trade Fair for Organic Food and Natural Products." The exhibition was organized in Nuremberg for the first time in 1999 and brought together as many as 1,276 exhibitors and more than 21,000 visitors. 112 vodkas, whiskies, and gins will be exhibited at the upcoming fair. Around 36 participants represent beer sectors, and around 82 participants have registered to represent the “Other Alcohol Drinks” sector. 1.3.4 Local industry regulations Germany, as a European Union member, in most cases follows EU distilled spirits import regulations with a couple additional factors. This chapter will provide an overview of regulations, but it is noticeable that once goods cross the EU frontier and pass through customs clearance, they have a right to be traded in EU territory. It is the distributor’s right to sell within any EU country, and there is no license needed for production, wholesale, or retail sales of alcoholic beverages.
Required Documents for import purposes.
The following is a list of the documents required and/or recommended when importing alcoholic beverages into Germany and other EU member states:
Commercial invoice; Customs value declaration; Freight insurance; Freight documents; Customs Import Declaration (SAD form – a common import declaration form for all EU Member States; must be drawn up in one of the official languages of the EU); Packing list; Certificate of origin;
110 Anuga Drinks. Retrieved from http://www.anuga.com/anuga/the-fair/anuga-trade-shows/anuga- drinks/index.php/. Retrieved on 05.13.2015. 111 International Green Week. Retrieved from http://www.gruenewoche.de/en/AboutIGWBerlin/. Retrieved on 05.13.2015. 112 BIOFACH. Retrieved from https://www.biofach.de/en/ausstellerprodukte/?focus=edb3searchnew&edb3text=&edb3textold=&focus2=&focu s3=&x=0&y=0&edb3category=Beer%2C+Other+alcoholic+drinks&edb3hall=&edb3fair=0&edb3plz=&edb3country= 0. Retrieved on 05.13.2015. Goods insurance certificate.113
All documents should be properly filled in or prepared and should reflect the actual quantity and quality of goods being imported to the EU in general and Germany in particular.
Import Procedures
The description of import procedures is based primarily on information from the US Commercial Services and International Affairs Division of the Alcohol and Tobacco Tax and Trade Bureau. An import declaration is required for goods from third countries, such as the US. When goods are imported into Germany, the importer or authorized agent must declare all items to customs using SAD.114 SAD covers the placement of any goods under customs procedures and is aimed at ensuring openness in national administrative requirements; the program also attempts to rationalize and reduce administrative documentation and to reduce the amount of requested information by standardizing data.115 The declaration may be submitted to the Federal Customs Administration, in-person or electronically.
Goods are released from customs for "free circulation" once pertinent documents have been filed and payment of tariff duties has been completed. After paying the value added tax (VAT) and any other applicable excise duty, goods are released for consumption and ready to be marketed.116 1.3.5 Export/import tariffs and regulations When exporting to Germany, US suppliers should take into account payment of import tariffs, as well as value added taxes once goods are released from the customs, and excise taxes.
Tariffs
According to the Taxation and Customs Union Database (TARIC), vodka, gin and whiskey imported from the US are subject to 0% import duty.117
Value Added Tax (VAT)
Value Added Tax (VAT or Umsatzsteuer in Germany) is an indirect tax on goods and services borne by the end consumer and applied to the value added at each stage of the supply chain. The German VAT rate is currently 19%, with 25 Euro minimum amount paid.118
113 International Affairs Division. Germany. Retrieved from http://www.ttb.gov/itd/germany.shtml. Retrieved on 05.15.2015. 114 International Affairs Division. Germany. Retrieved from http://www.ttb.gov/itd/germany.shtml#TARIFFS. Retrieved on 05.15.2015. 115 The Single Administrative Document (SAD). Retrieved from http://ec.europa.eu/taxation_customs/customs/procedural_aspects/general/sad/index_en.htm. Retrieved on 05.15.2015. 116 International Affairs Division. Germany. Retrieved from http://www.ttb.gov/itd/germany.shtml#TARIFFS. Retrieved on 05.15.2015. 117 Tarrifs. Retrieved from http://ec.europa.eu/taxation_customs/dds2/taric/taric_consultation.jsp?Lang=en&redirectionDate=20100802. Retrieved on 05.15.2015. 118 http://ec.europa.eu/health/archive/ph_determinants/life_style/alcohol/documents/alcohol_rand_en.pdf Excise Tax
The minimum excise duty on ethyl alcohol in EU is 550 EUR or 1000 EUR per hectoliter of pure alcohol (Article 20 of Directive 92/83EEC.) Germany’s rate is 1303 EUR per hectoliter of pure alcohol, the reduced rate is 730 EUR per hectoliter. The rate by EU law may not be more than 50 below the standard national rate.119
There are no specific regulations concerning price levels for distilled spirit products within the European Union, but there are regulations in a small number of European countries that act as ‘proxies’ for minimum-price regulations. For example, in Germany the “apple Juice law” states that in on-premise trade, at least one alcohol-free beverage must be cheaper than the cheapest alcoholic beverage.120 1.3.6 Packaging and labeling rules Companies importing to Germany should be aware that product packaging is very important to German consumers since they are highly environmentally conscious. Distilled spirits manufacturers and their partners in Germany must make sure packaging materials for food products comply with EU and German domestic regulations. German packaging laws require manufacturers to take care of recycling or disposal of any packaging material they sell.121
All beverages which contain 1.2% alcohol or greater by volume must be labeled, according to food labeling provisions which went into effect in 1984. Germany in general has the same packaging regulations as the European Union, and therefore the label must include:
Name under which the product is sold: no trademark or brand name may substitute for the generic name, but may be used in addition; Net quantity of pre-packaged beverage in metric units (e.g., liter, centiliter, milliliter); Indication of the acquired alcoholic strength: the labeling of beverages containing more than 1.2% by volume of alcohol must indicate the actual alcoholic strength by volume, i.e. showing the word "alcohol" or the abbreviation "alc." followed by the symbol "% vol";
119 Excise Duties in Germany. Retrieved from http://www.cfe-eutax.org/taxation/excise-duties/germany. Retrieved on 05.15.2015. and http://ec.europa.eu/taxation_customs/resources/documents/taxation/excise_duties/alcoholic_beverages/rates/e xcise_duties-part_i_alcohol_en.pdf 120 The Affordability of Alcoholic Beverages in European Union. Retrieved from http://ec.europa.eu/health/archive/ph_determinants/life_style/alcohol/documents/alcohol_rand_en.pdf. Retrieved on 05.16.2015. 121 Germany Exporter Guide. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Exporter%20Guide_Berlin_Germany_12-15-2014.pdf. Retrieven on 05.13.2015. Date of minimum durability: this must consist of day, month, and year—in that order—and be preceded by the words "best before," "best before end," or "use by" for highly perishable goods; Any special conditions for keeping or use; Name or business name and address of the manufacturer, packager, or importer established in the EU; Place of origin; Instructions of use, where appropriate; Lot marking on pre-packaged beverages, with the marking preceded by the letter "L"; According to the Commission Directive 87/250/EEC on the indication of alcoholic strength by volume, the tolerances allowed in respect of the indication of the alcoholic strength by volume are: o 0.5% vol. for beers having an alcoholic strength not exceeding 5.5% vol. and beverages classified under subheading 22.07 B II of the Common Customs Tariff and made from grapes; o 1% vol. for beers having an alcoholic strength exceeding 5.5% vol. and beverages classified under subheading 22.07 B I of the Common Customs Tariff and made from grapes; ciders, berries, fruit wines, and the like; beverages based on fermented honey; o 1.5% vol. for beverages containing macerated fruit or parts of plants; o 0.3% vol. for other beverages.122
According to internal regulations in Germany there are no labeling requirements specific to distilled spirits -- only for wine – so importers should follow common rules EU rules. 1.3.7 Recommendation on ways to market Alaska distilled spirits Based on research and information presented in the previous chapters, these are some recommendations for how to introduce Alaska beer and distilled spirits to Germany:
1. In order to start working in the German market it may be useful to first visit a couple local trade shows or fairs to build connections with potential distributors. Besides fairs held in Germany, about 40 US organizations operate USDA-funded marketing programs there, with Alaska Seafood Marketing Institute being one of the participants. Other participants include the California Wine Institute, Almond Board of California, Cranberry Marketing Association, American Soybean Association, California Walnut Commission, and US Meat Export Federation. Being part of the marketing program at one of the mentioned organizations will give Alaska distilleries a good chance to establish products and brands in the German market. 2. The distilled spirits market in Germany is unique and differs greatly from Canada and Korea. A specialty of the market is the aging population and the related focus on healthy living. Organic and natural food products are highly valued in Germany, which can be beneficial for Alaska distilled spirits made from glacial water. 3. Since off-trade is getting more popular than purchasing alcohol in bars and restaurants, it may be useful to start sales programs through a local distributor with a focus on retail stores. It is important to be competitive on price, as this is a main driver of purchasing decisions for German consumers.
122 http://www.icap.org/Table/AlcoholBeverageLabeling 4. The German alcoholic beverages market is heavily dependent on imported products, especially in the case of distilled spirits, which gives US vendors a chance to strengthen positions in the market. US whiskey plays an important role in Germany’s beverage market, but vodka and gin positions are not that strong, taking less than 1% of the market based on 2013 data. With this being said it may be good to start exporting whiskey first. 5. With vodka exports to Germany, Alaska distilleries should consider the recent trend of purchasing fruit-flavored distilled drinks; Alaska berry-flavored vodka could be a good fit in the market. 6. In distilled spirit imports, the UK is an absolute leader for selling products to Germany. So in the marketing campaign the US should put themselves up against the UK products. It may be useful to capitalize on Alaska distilled spirits benefits. This is a widely-used advertising technique and may help switch some customers to Alaska brands or at least to try something new. 7. Almost half the market share of alcohol beverages in Germany is taken by beer and flavored alcoholic beverages. Alaska distilleries can capitalize on this trend and try to market spirits with different flavors firsthand. 8. One recommendation for Alaska distilleries is to consider getting the newly-introduced “EU Organic Food” logo to make the product easier to get attention from German consumers. In recent years marketers observed increasing demand for organic products in Germany and the European Union overall, which represents a large potential for US companies active in these markets. It may also help Alaska products to fit into the price range for distilled spirits in Germany as consumers are willing to pay more for “sustainable,” “natural,” and “organic” products. 1.4 China Even though China does not have a free trade agreement with the US, there is zero import tariff for malt- based beer, which creates an opportunity for US manufacturers to sell products without tariffs influencing the price.123 Alaska exports of merchandise in 2014 totaled $5.2 billion with China being the largest market, accounting for $1.5 billion in sales. This amounts to 28.4% of the state’s merchandise exports.124 1.4.1 Distribution channels Distribution channels in China are divided into off-trade and on-trade (please see the picture below.) On- trade sales include sales through full-service restaurants, fast food restaurants, street stalls and kiosks, cafes and bars, and home delivery or take-away. This segment equals $51.6 billion in sales in 2009, around 49% of beer sales in China.125
Off-trade sales occur through supermarkets, hypermarkets, small grocery retailers, convenience stores, independent small grocers, and food, drink, and tobacco specialists. This segment accounted for $53.4 billion in 2009, with 50.8% of beer sold through off-trade that year.126 Among all off-trade channels, small grocery stores are the leading sellers, which is due mainly to their convenient location near residential
123 Free Trade Agreements. Retrieved from http://trade.gov/fta/. Retrieved on 05.21.2015. 124 Alaska: Expanding Exports and Supporting Jobs through Trade Agreements. Retrieved from http://www.trade.gov/mas/ian/build/groups/public/@tg_ian/documents/webcontent/tg_ian_005315.pdf. Retrieved on 05.21.2015. 125 Consumer Trends: Wine, Beer and Spirits in China. Retrieved from http://www.gov.mb.ca/agriculture/market- prices-and-statistics/trade-statistics/pubs/china_alcohol_en.pdf. Retrieved on 05.19.2015. 126 Consumer Trends: Wine, Beer and Spirits in China. Retrieved from http://www.gov.mb.ca/agriculture/market- prices-and-statistics/trade-statistics/pubs/china_alcohol_en.pdf. Retrieved on 05.19.2015. neighborhoods. However, supermarket sales are increasing as they become more popular and as car ownership increases, thereby making supermarkets more accessible.127 On-trade Off-trade • full-service resturants; • supermarkets; • fast food stores; • hypermarkets; • street stalls/kiosks; • small grocery retailers; • cafes/bars; • convenience stores; • 100% home delivery • independent small or take away. grocers; • food/drink/tobacco specialists.
Graph 25: On-trade and Off-trade Distribution Channels. Source: Consumer Trends: Wine, Beer and Spirits in China.
While off-trade sales dominate the market, on-trade sales are increasing as socializing in restaurants, pubs, and bars grows in popularity.128
Online sales of beer is among the modern distribution channels in China. Direct Internet marketing has become more popular in China, with a growth rate in 2014 more than 12%, reaching nearly $450 billion that year, according to the National Bureau of Statistics. The Internet provides an avenue for educating consumers interested in high-end products, a wide array of choices, and who shop out of convenience. Taobao.com offers around 1,160 varieties of beer and is a good example of this trend.129
Working through specialized distributors can be challenging for US exporters as companies typically do not focus on marketing a specific brand but instead emphasize selling all products available in a way that would maximize profits. Another challenge is selling to rural remote regions, where transportation costs are high and delivery takes 5-6 days. Quick delivery is critical for beer due to its relatively short shelf-life. On the other hand it may be possible to concentrate on selling to large markets in China’s eastern, central, and northeast regions. In these saturated markets, companies compete to serve urban consumers through well-established sales channels including supermarkets, restaurants, and clubs.130
127 Consumer Trends: Wine, Beer and Spirits in China. Retrieved from http://www.gov.mb.ca/agriculture/market- prices-and-statistics/trade-statistics/pubs/china_alcohol_en.pdf. Retrieved on 05.19.2015. 128 Ibid. 129 Ibid. 130 China’s Beer Industry: Breaking the Growth Bottleneck. Retrieved from http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-China-Beer-Industry.pdf. Retrieved on 05.20.2015. 1.4.2 Market trends: Beer General Market Trends
As previously mentioned, beer sales are not spread throughout the country in equal proportions: eastern, central, and northeastern regions account for the majority of Chinese beer sales. In 2013, Greater Beijing accounted for 23% of total beer sales, followed by Central Provinces (18%) and Northeast China (14%).
Northwest China Greater 8% Beijing Southwest 23% China 12%
Greater Central Shanghai Provinces 12% 18%
Greater Guangdong Northeast 13% China 14%
Graph 26: Share in Total Beer Sales Volume, 2013. Source: Based on “Focus: China’s Beer Market”. Retrieved from http://www.just-drinks.com/analysis/focus-chinas- beer-market_id109412.aspx. Retrieved on 05.19.2015.
China is the largest beer market in the world, consuming 450 million hectoliters per year, approximately 25% of global beer consumption. 131 China is double the size of the second-largest market, the US, yet it accounts for an estimated 3% of global beer profit. Despite being a leader in beer consumption, China’s per capita annual consumption is 32 liters in 2012 (see picture below.) Over the last nine years (2004- 2012) per capita beer consumption in China increased 44.8%, and there is expected growth to 50 liters annually by 2020.132 Czech Republic, the leader in per capita beer consumption, accounts for 148.6 liters during the same year. US per capita consumption is 77.1 liters per year. Within the Asia-Pacific region, China accounts for 70% of beer volume consumed and 18% of earnings before interest and taxes.133
131 Focus: China’s Beer Market. Retrieved from http://www.just-drinks.com/analysis/focus-chinas-beer- market_id109412.aspx. Retrieved on 05.21.2015. 132 Ibid. 133 Ibid. 40 36.6 35 31.5 32 30.2 28.92 29 30 25.86 25 22.1 22.85
20
15
10
5
0 2004 2005 2006 2007 2008 2009 2010 2011 2012
Graph 27: Per Capita Beer Consumption, liters. Source: Access Asia, Kirin Institute of Food and Lifestyle Report Vol. 22 (2008 Beer Consumption in Major Countries), Accenture analysis, China Economic Information Network.
Domestic beers continue to dominate Chinese markets. Beer is the largest and most successful sector within alcoholic beverages. Two of the most popular local brands are Snow Beer and Tsingtao, accounting for more than 15 billion liters sold in 2013. Inexpensive lagers account for 89% of sales, with domestic standard lager achieving the most significant growth. 134
When marketing craft beer in China, specialists recommend focusing on premium product consumers and investing in educating customers to create awareness of the variety of craft beer culture.135
In 2014, China beer imports accounted for approximately 3.73% of world beer imports, reaching almost $407 million. This figure has grown by an astounding 349% over the past four years, and the global market share increased from 0.8% in 2011 to 3.73% in 2014, according to United Nations Comtrade data. A primary driver for this boom was economic growth in China. Per capita GDP grew by 53.6% from 2010 to 2013, reaching $6,807.4 per year.136 By comparison, per capita GDP growth in the US was around 9.6%, although it was up to $53,042 in 2013.
134 Consumer Trends: Wine, Beer and Spirits in China. Retrieved from http://www.gov.mb.ca/agriculture/market- prices-and-statistics/trade-statistics/pubs/china_alcohol_en.pdf. Retrieved on 05.19.2015. 135 https://far.rabobank.com/en/sectors/beverages/the-china-beer-market.html 136 GDP Per Capita. World Bank. Retrieved from http://data.worldbank.org/indicator/NY.GDP.PCAP.CD. Retrieved on 05.21.2015. $450,000,000 4.00%
$400,000,000 3.50%
$350,000,000 3.00% $300,000,000 2.50% $250,000,000 2.00% $200,000,000 1.50% $150,000,000 $100,000,000 1.00% $50,000,000 0.50% $0 0.00% 2011 2012 2013 2014
China Beer Import, $ Share in World Import, %
Graph 28: China Beer Import, 2011-2014. Source: Based on UN Comtrade Database. Looking at beer imports from the US, there has been an increase over the last four years, from $3.7 million in 2011 to $9.9 million in 2014. At the same time, the share of US imports decreased from 4.13% in 2011 to 2.45% in 2014. The projection is based on UN Comtrade data and may lack some numbers for 2014. However, it appears there was a slight decrease after 2013 when the US share was 3.81%. With overall import growth it can be assumed the US has strong competitors in the world beer market.
$12,000,000 4.50% 4.00% $10,000,000 3.50% $8,000,000 3.00% 2.50% $6,000,000 2.00% $4,000,000 1.50% 1.00% $2,000,000 0.50% $0 0.00% 2011 2012 2013 2014
China Beer Import from the US, $ Share in World Import, %
Graph 29: Beer Import from the US, 2011-2014. Source: UN Comtrade Database Based on information provided in the article “Worldwide Beer Production and Consumption,” China is facing a beer consumption deficit of about 1%, which means more is consumed in the country than is produced within its borders.
Consumption Habits
Although there is no official minimum drinking age in China, Chinese families have a conservative attitude towards alcohol consumption. Alcohol is not typically served to anyone under 18. Based on “IMI Consumer Behaviors and Lifestyles Yearbook 2002-2003” the primary consumption group includes people aged 25 to 44, with the heaviest beer drinkers aged 35 to 44. This age group falls within the largest population group in China based on 2013 data and accounts for approximately 47% of the total population (please see Graph below.)
Health and wellness is becoming increasingly important to Chinese consumers, which is part of the reason for increased consumption of grape wine and low-alcohol beer. Manufacturers have been launching new health-focused products including Gold Jiu and Han Fang Nuan Pi. 137 With the increase in income and economic growth in China, there was higher demand for premium and better-tasting products. As a result, standard lager brands are becoming more popular and economy brands less so, especially in urban areas. 138
Graph 30: China Population Trends. Source: Retrieved from http://www.worldometers.info/world-population/china-population/ and http://www.geohive.com/earth/population_age_2.aspx.
China has a large, fast-growing population (please see the graph above) with consumer preferences that vary regionally. It is difficult to pinpoint specific tastes to specific regions, although the majority prefer lighter tasting beers like Carlsberg Chill and Tsingtao Huadong. Each region has a different culture and varying social levels, and as a result, significant difference in the preference of beer. The working class has always enjoyed drinking cheaper light-tasting beer while white collar urban citizens prefer imported or high-end beer as a status symbol.139 Drinkers from Fujian and Guangdong provinces on the country’s southeast coast prefer expensive foreign brands, while those from inland areas such as Shandong, Beijing
137 Consumer Trends: Wine, Beer and Spirits in China. Retrieved from http://www.gov.mb.ca/agriculture/market- prices-and-statistics/trade-statistics/pubs/china_alcohol_en.pdf. Retrieved on 05.19.2015. 138 Ibid. 139 China’s Beer Market. Retrieved from http://www.thinkchina.com.au/thinkblog/chinese-beer-market/. Retrieved on 05.19.2015. and areas farther north prefer local beer like Tsingtao, Yanjing, and Harbin, which dominate the local market in those areas.140
Young consumers, particularly middle-class men who are well-educated, lead growth in the beer market, but the number of female drinkers is also increasing dramatically.141 In China, women are increasingly important to the beer market as more women are increasing their discretional income (through greater employment opportunity) to spend at consumer markets.142 Breweries in China as well as importers are targeting younger consumers, mainly millennials, which make up one-third of the country’s population. This target market favors flavored alcoholic beverages, ciders, and imported premium brands.143
IMI reports in the survey “Consumer Behaviors and Lifestyles Yearbook 2002-2003” about situations in which consumers from different areas in China would drink beer (please see the table below.) In most cases Chinese residents expressed an interest in drinking beer while dining (the share of answers vary from 32.5% to 67.5%) or at a banquet (the share of answers vary from 43.4% to 59.9%.) Consumers in Guangzhou are more willing to drink beer at a bar (15.7%), while Shanghai leads in drinking while dining (67.5%.) The “at banquet” group (in Guangzhou and Chengdu) is a leading segment, which is supported by the fact that it is socially acceptable to drink during social and business occasions. Beijing and Shanghai are absolute leaders in “at dining category” with “at banquet” being the second largest group.
Another survey conducted by the same organization focused on identifying what drives consumers in different locations to purchase beer. The results indicated that 100% of consumers ranked pleasant taste as the number one criterion; except in Shanghai, peers in the other six metropolitan markets ranked reasonable price and famous brand as the number two and three criteria respectively.144
Competition
The top five players in the local beer market are Tsingtao Brewery, China Resources Breweries, Yanjing Beer, Anheuser-Busch InBev, and Carlsberg. The top four companies together accounted for about 60%
140 China’s Beer Market. Retrieved from http://www.thinkchina.com.au/thinkblog/chinese-beer-market/. Retrieved on 05.19.2015. 141 Consumer Trends: Wine, Beer and Spirits in China. Retrieved from http://www.gov.mb.ca/agriculture/market- prices-and-statistics/trade-statistics/pubs/china_alcohol_en.pdf. Retrieved on 05.19.2015. 142 Consumer Behaviors in China Beer Market. Retrieved from https://www.nlb.gov.sg/Portals/0/Docs/Research/IndustryDigest.pdf. Retrieved on 05.19.2015. 143 https://far.rabobank.com/en/sectors/beverages/the-china-beer-market.html 144 Consumer Behaviors in China Beer Market. Retrieved from https://www.nlb.gov.sg/Portals/0/Docs/Research/IndustryDigest.pdf. Retrieved on 05.19.2015. of the nation’s beer sales and increased their market share by 2% in the past five years (Please see the picture below.)
Biggest Beer Brands in China, 2013 Biggest Breweries in China, 2013 Billion Billion Liters Liters Laosh Carlbe an 1.5 rg 2.3
Beijing Harbin 2.8 Yanjin 5.6 g
Anheu Yanjin ser- g 3.8 6.2 Bush…
Tsingt Tsingt ao 5.2 ao 8.6 Brew…
Snow China Beer 10.3 Resou 12.1 ces
Graph 31: Brands and Breweries in China, 2013 Source: Based on “The Most Popular Beer Brand in China”. Retrieved from http://firstwefeast.com/drink/the- most-popular-beer-in-the-world-is-chinese/. Retrieved on 05.20.2015. China Resources is owned primarily by SABMiller, which holds 49% of the company shares. CR Snow has increased its market share from 5% in 2000 to about 20% today.145 This was caused primarily by the fact that the company added numerous breweries in the past year, including one in Guizhou, two in Liaoning, one in Jiangsu, one in Shanghai, one in Anhui, and two in Henan. 146 Tsingtao – 20% of the company is owned by Asahi. Tsingtao is the second-largest brewery in China and accounts for about 30% of China's profit pool because of its higher price. 147 Anheuser-Busch InBev is a multinational beverage and brewing company headquartered in Belgium. The company recently built a new brewery in Sichuan and is expanding in the northeast and Fujian. 148 Beijing Yanjing is a state-owned brewing company. Carlsberg is mainly focused on the western part of China through direct subsidies and minority partnerships with local companies. 149 Another key competitor in the local market is Heineken, which has interests managed by the Hong Kong office of its Asia-Pacific Breweries department. The company has breweries in Hainan and Guangzhou. Anheuser-Busch InBev, China Resources, Heineken, and Carlsberg occupy 46% of the market. 150
145 Focus: China’s Beer Market. Retrieved from http://www.just-drinks.com/analysis/focus-chinas-beer- market_id109412.aspx. Retrieved on 05.18.2015. 146 Ibid. 147 Ibid. 148 Ibid. 149 Ibid. 150 China Beer Industry 2013 Market Size, Share, Growth, Trends and Forecast. Retrieved from https://www.linkedin.com/pulse/20140805114629-137774108-china-beer-industry-2013-market-size-share- growth-trends-and-forecast. Retrieved on 05.18.2015. One recent trend in brewing is mergers and acquisitions, which allows local companies to consolidate and take a larger share of the market, and foreign companies to have easier access to the market. For example, Anheuser-Busch InBev wholly owns China’s Harbin Brewery. SABMiller, which is a multinational brewing and beverage company headquartered in England, holds a 49% stake in China Resources Snow Breweries. Carlsberg, a Danish brewing company, acquired a 29.71% stake in China’s Chongqing Brewery.151 These acquisitions make the industry more concentrated and allow foreign players to attempt to brew locally.
The five most popular beer brands in China account for 23.6 billion liters of brewed beer in 2013 (please see the graph above):
Snow Beer (10.3 billion liters produced in 2013) is the most popular beer in China, made by China Resources Snow Breweries Ltd. CR Snow is the largest brewing company in China. Its other brands include Blue Sword, Green Leaves, Huadan, Huadan Yate, Largo, Löwen, New Three Star, Shengquan, Shenyang, Singo, Sip, Tianjin, Yatai, Yingshi and Zero Clock.152 Tsingtao (5.2 billion liters produced in 2013) has a pleasant aroma and well-balanced taste, and it is the second largest beer brand globally and China’s most widely exported beer. Each and every bottle is brewed using the exact same ingredients and is only ever brewed at the famous Tsingtao brewery.153 Yanjing (3.8 billion liters produced in 2013) brewed with spring water for a crisp, refreshing taste brewed at the Beijing Yanjing Brewery. 154 Harbin (2.8 billion liters produced in 2013) made by Belgium’s Anheuser-Busch InBev, the largest brewing company in the world. Laoshan (1.5 billion liters produced in 2013) an amber-colored, pilsner-style beer delivering a crisp, slightly malty flavor and a sweet taste.155
Competition is growing from imported brands, which usually differ from Chinese brands even on a production level. The article “China’s Beer Market” suggests that Chinese beers are often made from rice, sorghum, and sometimes rye, in addition to barley, bitter melon as a bittering agent rather than hops. As a result, local brands usually have a light taste and may even be used to prevent dehydration. Foreign brands use only water, malted barley, and hops as a bittering agent in production, which makes a bitter taste compared to Chinese competitors. Without educating local buyers about foreign beer tastes and without a proper marketing campaign, bitter beer can be perceived negatively.
Imported beer usually has a higher alcohol content and stronger taste than local beers while also being 30-50% more expensive than local beers, recent research from Tsinghua University Press suggests.156
151 China Beer Industry 2013 Market Size, Share, Growth, Trends and Forecast. Retrieved from https://www.linkedin.com/pulse/20140805114629-137774108-china-beer-industry-2013-market-size-share- growth-trends-and-forecast. Retrieved on 05.18.2015. 152 Five Biggest Beer Brands in China by Volume. Retrieved from http://ceoworld.biz/2014/07/28/5-biggest-beer- brands-china-volume. Retrieved on 05.19.2015. 153 Ibid. 154 Ibid. 155 Ibid. 156 China’s Beer Market. Retrieved from http://www.thinkchina.com.au/thinkblog/chinese-beer-market/. Retrieved on 05.19.2015. Other France 19.13% 3.77%
US 3.55%
Mexico 4.10%
Republic of Germany Korea 54.90%
Netherland Belgium s 6.78% 4.41% Graph 32: Beer Import Volume by Country, 2013. Source: Based on UN Comtrade Database.
The graph above shows the share of different countries in terms of total imports to China. Germany is an absolute leader, holding 54.9% of beer imports in 2013. The US is fifth based on the dollar value of imported beers, behind Belgium (6.78%), Mexico (4.10%), and France (3.77%.) 1.4.3 Market associations and guilds Joining beer associations in China is a good way to build relationships with local beer makers, and to find potential distributors and importers. We located several local beer associations:
China Craft Brewers Association is a coalition of brewers founded in 2012 by brewers Leon Mickelson, Michael Jordan, Dane VandenBerg, and Carl Setzer . The organization aims to teach drinkers, brewers, and distributors the proper techniques and best practices for creating, packaging, shipping, and appreciating good beer.157
Chinese Brewers Association is the Chinese office of the American Brewers Association, which launched in Shanghai. The organization’s export manager targeted the Chinese market for promotional activities since 2006 and maintains a presence annually to support growth.158 The organization participated in the Shanghai International Beer Festival in 2012, 2013, and 2014 as part of its export development program.159 For Alaska companies exploring export channels to China, this could be a good starting point.
Aside from joining brewers associations, visiting industry fairs, exhibitions and trade shows could be useful. “China’s Food and Drink Expo” is the China’s largest show of its type and is held in Chengdu every
157 China Craft Brewers Association. Retrieved from http://chinacraftbrewersassociation.com/. Retrieved on 05.20.2015. 158 The American Brewers Association. Retrieved from https://www.brewersassociation.org/attachments/0001/4321/BA_Interview-Hops.pdf. Retrieved on 05.21.2015. 159 Shanghai International Beer Festival. Retrieved from http://www.brewersassociation.org/. Retrieved on 05.21.2015.
March. Beer manufacturers are widely-represented. Many visitors are importers or distributors seeking newly-introduced beer brands.160
Another good example is the Shanghai International Beer Festival, which attracted more than 30,000 visitors in 2014. It serves as a platform to connect brewers and customers and for manufacturers to promote brands and to present novelties into the market.161 1.4.4 Local industry regulations The description of the import process summarized in this chapter is based primarily on information from the “British Craft Brewers Export Report” and the US Alcohol and Tobacco Tax and Trade Bureau International Affairs Division report. These resources should be consulted further to ensure the information reflected in this report remains current.
Required Documents
The following documents are required in order to conduct a customs clearance of import beer:
Commercial invoice; Customs Value Declaration; Freight Insurance/documents; Packing List; Insurance Certificate; Certificate of Origin (specifically for malt beverages); Certificate of Health/Sanitation (specifically for malt beverages); Certificate of Authenticity/Free Sale (specifically for malt beverages);
The Certificate of Health and Sanitation, Certificate of Origin, and a Certificate of Authenticity and Free Sale must be signed, stamped, and dated by a competent authority from the product's country of origin. That means the US Alcohol and Tobacco Tax and Trade Bureau International Affairs Division must approve documents. The agency issues certifications for China, though Certificates of Origin may be signed by any government entity that can verify the origin of the product, such as a state Commerce Department. The supplier and producer may not approve documents themselves.162
Import Process
When importing beer into China, eight steps must be followed: 163
Registration of the Exporter with the Certification and Accreditation Administration of the People’s Republic of China (CNCA): From October, 1, 2012, food and beverage exporters to China
160 US Craft Beer Has a Great Potential in China Market. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/US%20Craft%20Beer%20Has%20a%20Great%20Potenti al%20in%20the%20China%20Market%20_Guangzhou_China%20-%20Peoples%20Republic%20of_2-5-2015.pdf. Retrieved on 05.19.2015. 161 Shanghai International Beer Festival. Retrieved from http://www.bevexmarketing.com/beerfest/about_en.html. Retrieved on 05.21.2015. 162 International Affairs Division: People’s Republic of China. Retrieved from http://www.ttb.gov/itd/china.shtml#DOCUMENTS. Retrieved on 05.22.2015. 163 British Craft Brewers: Export Project Report. Retrieved from http://www.clementsmarketing.com/wp- content/uploads/2013/10/inet_project_submitted_report.pdf. Retrieved on 05.21.2015. are required to register through the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), which can be done directly by a manufacturer or importer. Both options can be accessed through http://ire.eciq.cn. The exporter will also need to apply for registration with the Certification and Accreditation Administration of the People’s Republic of China; 164 Recording of labels with the local Entry-Exit Inspection and Quarantine Bureau. The following procedures and documents are required when recording a label: complete application from the local Entry-Exit Inspection and Quarantine Bureau, copy of the exporters UK Business License with signature or stamp, Chinese label (which is examined in more detail in section 3.5 Beer Labeling Regulations), English label sample together with a Chinese translated version, certificate of origin, beer production technology process with signature or stamp, production license, beer quality inspection reports (given by AQSIQ after inspecting sample beers); 165 Receipts examination before beer arrival at port of entry. Original documents must be signed, stamped and couriered to China to arrive one week before the expected shipment. One should also note that if the package is made from wood it must be marked with International Plant Protection Convention (‘IPPC’) as China is a signatory of this international agreement; 166 Filing Customs declaration. When the beer arrives at the port of entry the following documents are required: container loading list, import invoice, import contract, port clearance, payment voucher, bill of lading, delivery order, export license; 167 Examination of product and its release. The tax payment receipts are required for this procedure; 168 Customs clearance. The appointed consignee should sign for the beer; 169 Legal Commodity Inspection. When the consignment arrives at the port of entry, a Customs Information Paper (CIP) declaration together with customs declaration need to be produced with the following documents: import invoice, country of the origin certificate, sanitary certificate, bill of lading, container loading list, import contract, label recording form, original and translated label, and a copy of any distributor’s Business License, commodity inspection certificate for export, English label sample together with Chinese translated version, beer production technology process with signature or stamp;170 Expense settlements for the importation process.
For all procedures mentioned above – with the exception of registering with the Certification and Accreditation Administration of the People’s Republic of China – the official importer or professional customs brokerage company may deal with all procedures. In addition, various US agencies in China provide information on import procedures and regulations. Examples include Agricultural Trade Office in Shanghai, US Agricultural Trade Office in Shanghai, and Embassy of the People's Republic of China.
164 International Affairs Division: People’s Republic of China. Retrieved from http://www.ttb.gov/itd/china.shtml#DOCUMENTS. Retrieved on 05.22.2015. 165 British Craft Brewers: Export Project Report. Retrieved from http://www.clementsmarketing.com/wp- content/uploads/2013/10/inet_project_submitted_report.pdf. Retrieved on 05.21.2015. 166 Ibid. 167 Ibid. 168 Ibid. 169 Ibid. 170 Ibid. 1.4.5 Export/import tariffs and regulations Beer has the unified commodity code 2203.0000.00, which is relevant for all import procedures. Zero beer import tariff is added in China for beer imported from the US.171
A value added tax of 17% is imposed, and the products are also subject to a consumption tax: 172
RMB250/ton or $42 per ton, if price (after VAT paid) is more than $370 per ton. RMB220/ton or $37 per ton, if price (after VAT paid) is less than $370 per ton.
One ton is equal to 998 liters. Both imported and local beer are subject to a consumption tax.173
Based on information provided in a USDA Foreign Agriculture Services report, US craft beer’s unit price (CIF) in China is around is $2.4 per liter. Belgian and French beers have similar unit prices of $2 and $2.3 per liter respectively, and in 2014 their exports to China are estimated to reach $29 million and $23 million. 174 Taking into account that French and Belgian imported beer has a larger share of the market than US beer, there is an incentive for US exporters to push down prices to the level of competitors. 1.4.6 Packaging and labeling rules According to the “General Standard of Labeling of Food and General Standard of Labeling of Pre-packaging Alcoholic Beverages in China” the following information should be placed on a label:
Name of product; Alcoholic strength at 20°C: the percentage of pure alcohol in total volume or mass (this should be expressed as alcoholic strength in %); Original extract content or ingredients list (sweeteners, preservatives and added color – legal in the case of fortified wine only – must be declared), exempt for products made of one ingredient; Net volume (ml): This should be marked as ‘net content xxx Ml (ml)’ for bottle sizes under a liter, or ‘net content x Liters (l)’ for bottle sizes over a liter. For packages up to (and including 200ml) the minimum print height is 3mm. From 200ml up to and including 1 liter, the minimum print height is 4mm. For packages greater than 1 liter the minimum print height is 6mm; Production date (yy/mm/dd): The date of bottling is required; Producer/Distributor/Importer (Name and address): The name and address of the Chinese agent, importer, or distributor must be shown. The name and address of the producer is not mandatory, and if included does not need to be translated; Labeling of date and storage instructions: date labeling must include date of packaging as well as durability information; Recommended content information: lot number, drinking methods, and type of product (e.g., dry/sweet, sugar content, flavoring, for flavored spirits);
171 China Tariff Schedule. Retrieved from http://www.chinafta.govt.nz/1-The-agreement/2-Text-of-the- agreement/0-downloads/China-Tariff-Schedule.pdf. Retrieved on 05.20.2015. 172 Ibid. 173 Ibid. 174 US Craft Beer Has a Great Potential in China Market. Retrieved from http://gain.fas.usda.gov/Recent%20GAIN%20Publications/US%20Craft%20Beer%20Has%20a%20Great%20Potenti al%20in%20the%20China%20Market%20_Guangzhou_China%20-%20Peoples%20Republic%20of_2-5-2015.pdf. Retrieved on 05.19.2015. Country of origin: a country of origin statement is mandatory, and importers will usually request a Certificate of Origin to confirm this claim; Sugar content (g/L); Mandatory Warning Statements: the following warning and others must be on the bottle in Chinese: "Excessive drinking is harmful to health" or "Pregnant women and children shall not drink." For beer in glass bottles also add "Do not hit; it might cause explosion of the bottle";175176 Nutrition and energy labeling is voluntary and needs to meet general food/nutrition labeling standards.177
Glass bottles are cheaper than cans in China due to reduced packaging costs. However, canned brands are increasing in popularity due to their shatterproof appeal and status amongst younger, fashion-conscious consumers.178 1.4.7 Recommendations on ways to market Alaska distilled spirits Based on research and information presented in previous chapters, these are some recommendations on how to introduce Alaska beer to China alcohol beverages market:
1. Based on information provided in previous chapters, building relationships with local producers in China is the recommended starting point for breaking into the Chinese market. Networking with potential importers and distributors is also another sound strategy. A good approach is by taking part in industry-specific trade shows, fairs, and exhibitions in China. Direct investment to local beer manufacturers is another option which is widely used by international beer-making companies with a presence in China. 2. When marketing craft beer in China, specialists recommend focusing campaigns on premium product consumers, including business people or even young professionals, especially those who went abroad for education, as they may already be familiar with US beer or at least will be more open for experiments. This group is usually ready to pay more for a high-quality product. 3. Taking into account No. 2, it may be possible to concentrate on selling to large markets in China’s eastern, central, and northeast regions, where companies compete to serve urban consumers through well-established sales channels including supermarkets, restaurants, and clubs. 4. Online sales of beer is getting more popular in China and can be completed at minimum expense for breweries. The Internet provides variety for educated consumers interested in high-end products, an array of choices, and to shop out of convenience. This can be accompanied by utilizing social media sites to describe offerings and to explain how to pair beers with food. 5. As in Korea and Germany, health and wellness is becoming increasingly important to Chinese consumer, which is part of the reason for increased consumption of grape wine and low-alcohol beer, which generates demand for premium and well-tasting products. Alaska breweries together with other products may offer low-alcohol beer and possibly beer with different flavor or ciders
175 China - Labeling Prepackaged Alcoholic Beverages. Retrieved from http://www.fas.usda.gov/gainfiles/200501/146118532.doc. Retrieved on 05.10.2015. 176 People’s Republic of China. Retrieved from http://www.ttb.gov/itd/china.shtml. Retrieved on 05.21.2015. 177 General Administration of Quality Supervision, Inspection and Quarantine. Retrieved from http://english.aqsiq.gov.cn. Retrieved on 05.10.2015 178 Consumer Trends: Wine, Beer and Spirits in China. Retrieved from http://www.gov.mb.ca/agriculture/market- prices-and-statistics/trade-statistics/pubs/china_alcohol_en.pdf. Retrieved on 05.19.2015. (wild berries, fruits etc.) It may be especially useful taking into account that women are getting more into beer and already take a strong role in family decision-making. 6. When choosing which region in China to conduct business, the exporter should take into account that rural and urban areas have different preferences. In addition, the market is among the most diversified in the world, and it is recommended to pick one area to begin, learn its traditions and culture, and tailor marketing campaigns to local characteristics. It would also be relatively easier to start distribution in first-tier cities like Guangzhou, Shenzhen, Shanghai, and Beijing. The article “China’s Beer Market” states several reasons for this approach, including the fact that consumers in these regions are more willing to experiment with taste and to try imported beer. 7. The beer industry in China has experienced rapid growth for several years, but now growth is slowing. In order to “break the growth bottleneck,” experts suggest manufacturers focus on high- end products in China’s urban markets and low-cost, high-quality products in rural areas. 8. The heaviest beer drinkers in China aged 35 to 44 years old. This age group in large cities is usually characterized as working class people who already graduated and decided a career path. This group of consumers usually knows what they need from life and lean toward traditional beer brands. Targeting this group may be difficult, but one technique is to pair Alaska beer with Alaska seafood. Alaska seafood is already well-known in China, which may translate well for beer. Partnering with Alaska Seafood Marketing Institute may prove helpful in this effort. 9. In China there are two main categories of drinking: “at dining” and “at banquet,” and therefore for Alaska breweries it may be useful to focus marketing campaigns on households and families as well as business people and political circles who spend a lot on banquets.
Methodology of Choosing the Countries Selection of countries included in the current report was based on methodology developed by the UA Center for Economic Development. The methodology focuses on assigning a weighted average score for each potential export country. The reasoning is based on the idea that all countries can be ranked on specific parameters important for successful international cooperation and foreign trade.
The following parameters are used to assign ratings:
1. Share of imports to a specific country in the world import of the product. This parameter is based on import volume of the chosen product; 2. Growth of import; 3. Share of export to a specific country out of total export of the product from the US. This parameter is based on export volume of the chosen product from the US to countries identified in parameter 1; 4. Export growth; 5. Rank of the country in trade volume with Alaska; 6. Share of the US in import to a specific country of the chosen product (identification of main trade partners); 7. Existence of a free trade agreement (FTA) between the country and the US.
In the description of methodology, vodka is used as example, but the same process is applied to all the products. As a first step, countries importing the most vodka were identified, and then parameter three is focused on the main countries among the largest importers of US vodka. Each mentioned parameter was assigned a weight based on relative importance to Alaska export opportunities. For example, how well a particular country ranks in trade with Alaska is likely more important than measuring the recent growth in overall US exports for a specific product, therefore, each criterion is assigned its own weight based on its relative importance. The weighting formula can be seen below:
In order to gather data for each chosen parameter, a number of sources were used throughout the study, including: United Nations Commodity Trade Statistics Database,179 US Census Bureau Foreign Trade Data,180 and Office of the United States Trade Representative information on FTAs.181
Parameters 1 and 2.
The first parameter is based on import volume for a chosen product and was used to identify the initial list of countries for vodka, whiskey, gin, and beer trade. Countries with the highest dollar amount of imports were chosen. After this initial list was identified, UACED calculated the share of import to every country from the world import of every specific product, as well as the import’s growth rate.
Countries were given one point for the share higher than the average share of all countries on a list. One more point was given to countries with a higher-than-average growth rate.
The results are presented in the table below. Only one product (Vodka) is shown below, for illustrative purposes. Full results can be found in Appendix 4.
179 United Nations Commodity Trade Statistics Database. Retrieved from http://comtrade.un.org/db/mr/rfCommoditiesList.aspx?px=HS&cc=220860. Retrieved on 04.30.2015. 180 US Census Bureau Foreign Trade. Retrieved from http://www.census.gov/foreign- trade/statistics/state/data/ak.html. Retrieved on 04.30.2015. 181 Office of the United States Trade Representative. Retrieved from https://ustr.gov/trade-agreements/free-trade- agreements. Retrieved on 04.30.2015.
Parameter 3 and 4.
Parameter three shows the dollar value of US exports to each country identified in parameter one. As this list was generated, countries not initially identified in parameter one were included when it was found that the US had a high volume of exports to that particular country. This way, all major potential export markets for Alaskan distilleries were included in the UACED’s analysis. After this list of countries was identified, UACED calculated the share of exports to every country from the US of every specific product, as well as the export’s growth rate.
Countries were given one point for having a share higher than the average share of all countries in the list. One more point was given to countries with a growth rate higher than the average growth rate.
(The table below represents the results for vodka only, all the rest products rank can be found in Appendix 4.)
Parameter 5: Rank of export from Alaska
One point was given to every country with a rank equal to or higher than five. The result for all the countries, taking part in ranking for vodka, whiskey, gin and beer, is represented in the table below.
Parameter 6: Share of the US in product import to specific country.
This parameter basically shows whether or not the US is one of the key trade partners for such products as vodka, whiskies, gin and beer. The top six countries with a highest share were granted a point, the result for whiskey is represented in the table below (the result for all the rest products can be found in Appendix 4.)
Parameter 7: Free Trade Agreement
The country was given a point if there is a FTA between the country and the US, the result for all the countries taking part in raking is in the table below as well.
After multiplying points for each parameter on the parameter weight and summing all parameters, UACED identified final points for each country in the list for every specific product
Countries with the highest points were chosen as Alaska trade partners: for distilled spirits, Canada, Republic of Korea, and Germany were chosen, and for beer, Canada, Republic of Korea and China.
Appendix 1: Licensed Importers of Beer in South Korea (requested on May 5th, 2015). COMPANY CONTACT TITLE PHONE E-MAIL
4UKorea Jin Seon Yoo President 82-2-323-0348 [email protected]
BK Co., Ltd. Mi Na KANG Manager 82-2-529-6525 [email protected]
Kannabiz Club Korea Saeuhn Oh Vice President 82-2-511-8411 [email protected]
Chet International Do Hyun KIM Manager 82-31-757-1886 [email protected] Chungbu Hannam Bon Joon
Chain Co., Ltd. HWANG President 82-43-212-9181 [email protected] Craftworks Brewing
Company Andrew KONG Sales Manager 82-70-8955-2337 [email protected]
Daekyung Ham co., Ltd. Woo Sung JUNG Manager 82-31-762-6628 [email protected] Dongwha Liquor Co., Deputy General Ltd. Nam Joong KIM Manager 82-31-239-4992 [email protected] Global Craft Korea Co., Representative
Ltd. Eunjueng Sohn Director 82-2-2190-3712 [email protected]
Hite Brewery Co., Ltd. Young Tae BYUN Manager 82-2-520-3047 young-tae@hitejinro.com 82-2-3788-0153/
I&J Partners Co., Ltd. Seong PARK Manager 0159 [email protected]
iBEER Ltd. Joon Hwan JOO Manager 82-70-8958-7376 [email protected] Into Franchise Systems
Inc. In Sung BAEK General Manager 82-2-487-0581 [email protected] Seung Yeon KB Korea Inc CHOI President 82-31-726-2472 [email protected] Keumyang
International Hyung Gon KIM General Manager 82-2-2109-9250 [email protected]
Koweon Liquors Co.,Ltd Weon Woo KO CEO 82-2-2249-2301 [email protected] Marketing
KS Wine Jay Kim Manager 82-31-752-2579 [email protected]
M's Beverage Co, Ltd Eun Ji LEE Staff 82-2-2127-9860 [email protected] SAB Miller Brand Korea
Co.,Ltd Jeung Wuk KIM Team Leader 82-2-3019-6000 [email protected]
Sanmi Co., Ltd Ho Young BAEK President 82-2-553-6861 [email protected] Schmuker Korea Co.,
Ltd Young Hoon KIM President 82-31-793-6947 [email protected] Segye Juryu Sangsa Co.,
Ltd. Tae Yong YEO Chairman 82-53-783-6333 [email protected] 82 (0)32 663
Seung-Ji Co., Ltd. James KYUN 4997 [email protected]
Shin Han F & B Co., Ltd Ho Cheol JEONG President 82-2-706-1541 [email protected] Choong Goo
Shinsegae L&B Co., Ltd. JEONG Team Leader 82-2-727-1971 leon@shinsegae.com SK happiness
Foundation June Oh KIM Business Manager 82-70-7601-4178 [email protected] Sunil Trading Corporation Seung Sun PARK President 82-2-757-7831 [email protected] Vin de Vin Co., Ltd. Seok Ho LEE Director 82-31-974-1960 [email protected] Vintage Korea Co., Ltd. Myung Jin PARK President 82-2-574-1999 [email protected]
Indulge Co., Ltd. James Pollina CEO 82-2-512-5270 [email protected]
USCRAFT International John Lee CEO 82-2-867-8452 [email protected]
Appendix 2: Licensed Distilled Spirits Importers in South Korea (requested on May 5th, 2015). COMPANY CONTACT TITLE PHONE E-MAIL Allied Young Fortune Brand 82-2-2175-
Brands Co., Ltd. Eun Jin CHOI Manager 0015 [email protected] 82-2-719- Andina Wine Co., Ltd. Sung Soo KIM President 4255 [email protected] ATL Korea (All That 82-70-8987-
Liquor) Hee Jin SEO President 1683 [email protected] A-young Liquor Trading 82-2-2631- Co., Ltd. Jong Ik WOO President 2304 [email protected] 82-2-548- B&B Wine Co., Ltd. Kyung Koo BAE President 7634 [email protected] 82-2-529-
BK Co., Ltd. Mi Na KANG Manager 6525 [email protected] Kwang Taek 82-2-830- BNC Wine Co., Ltd. BYUN President 3323 [email protected] 82-31-281- Bonito Korea Co., Ltd. Moo Il CHO Manager 0461 (101) [email protected] Brown-Forman Korea 82-2-518- Ltd. Yong Shik KIM President 7700 [email protected] 82-2-475- Buck Kyeong Trading Jum Doo NAH President 4128 [email protected] 82-2-786- Cave-De-Vin Co., Ltd. An Keun YOO President 3136 [email protected] Chang Bun 82-2-552- Cep D'or Liquor AHN CEO 3131 [email protected] 82-31-757- Chet International Do Hyun KIM Manager 1886 [email protected] 82-31-293- Chun Par Hong Sung KIM President 9527 [email protected] Chungdam Distribution 82-2-567- Co., Ltd. Heung In KIM President 6885 [email protected] 82-2-867- Daejung Co., Ltd. Cheol Soo KIM Manager 8001 [email protected] Woo Sung 82-31-762-
Daekyung Ham Co., Ltd. JEONG Manager 6628 [email protected] 82-2-2175- Daeyoo Import Inc. Ki Jung LA Team Leader 0015 [email protected] Brand 82-2-598-
Daeyoo Wines Co., Ltd. Ju Lee KIM Manager 9870 [email protected] 82-2-405- Dana Cellars Co., Ltd. Ick Soon SHON CEO 4300 [email protected] Jung Hoon Diageo Korea Co., Ltd. SHON Manager [email protected] Deputy Dongwha Liquor Co., Nam Joong General 82-31-239- Ltd. KIM Manager 4992 [email protected] Asia Pacific Regional 82-2-2292- E & J Gallo Korea Hyun Jun CHO Manager 8094 [email protected] Managing 82-2-2140-
Edrington Korea Joo Ho KIM Director 4600 [email protected] Woo Hyun General 82-2-509-
Eland Retail Co., Ltd. PARK Manager 5368 [email protected] Eland Retail Ltd. / Wine 82-2-509-
Castle Ltd. Min LEE Wine Manager 5370 [email protected] 82-2-3442-
Enoteca Korea Jin Seob KIM CEO 1150 [email protected] Fine Liquor Korea Co., Young Hwa 82-2-449- Ltd. CHOI President 3151 [email protected] 82-31-989-
Gim Po Rice Wine Yi Jun KWON President 0104 [email protected] Hee Hyoung 82-63-247- Gold Dragon SO President 0111 [email protected] Brand 82-2-3488-
Golden Blue Kwan Tae KIM Manager 9931 [email protected] 82-2-569-
Grandvin Korea Kwan Gyu HAN CEO 8700 [email protected] Handeulwine Import Yang Myeong 82-52-269-
Co., Ltd. LEE President 9175 [email protected] 82-2-551-
Handok Wine Co., Ltd. Hak Gyun KIM Supporter 6874 [email protected] 82-2-728- Hanjin Co., Ltd. Eun Kyu PARK Staff 5744 [email protected] 82-2-3477-
Hant Co., Ltd. Ho Seok KIM President 6697 [email protected] 82-31-462- Hanwol Cheol O JEON Director 3440 [email protected] 82-31-320-
Hermes Logix Jong Ha KANG Director 4900 [email protected] Myung Ha 82-2-561-
HighRich Corporation (David) YOON CEO 4581 [email protected] Hyun Chul 82-2-561- HighRich Corporation SONG Manager 4581 [email protected] Young Tae 82-2-520-
Hite Brewery Co., Ltd. BYUN Manager 3047 [email protected] Seong (Sean) Senior 82-2-3788-
I & J Partners Co., Ltd. PARK Manager 0159 [email protected] Won Seok Assistant 82-31-8015-
Iaan Marketing Co. (Jason) CHUN Manager 2142 [email protected] Jong Myoung 82-70-3667-
iBEER Ltd. KIM Director 7877 [email protected] 82-2-413- Ilkwang FNS Co., Ltd. Wang Lim LEE President 6081 [email protected] Independent Liquor 82-2-581-
Korea (KGB) Joong Hee LEE President 3400 [email protected] Into Franchise Systems General 82-2-487-
Inc. In Sung BAEK Manager 0581 [email protected] Kyoung Lim 82-31-468- Jacqueline International HAN President 4249 [email protected] KAJA WINE & SPIRIT Co., Moon Hee Marketing 82-2-406- Ltd. MIN Manager 2220 [email protected] Seung Yeon 82-31-726- KB Korea Inc CHOI President 2472 [email protected] Hyung Gon General 82-2-2109- Keumyang International KIM Manager 9250 [email protected] Woo Hyung 82-2-805- Kil Jin International Inc. CHOI Manager 2013 [email protected] Korea Alcohol Industrial 82-2-3440- Co., Ltd. Jin Gook KIM Manager 4271 [email protected] Korea Wine Mart Co., 82-2-3474- Ltd. Il Seok YONG President 6240 [email protected] Koweon Liquors Co., 82-2-2249- Ltd. Weon Woo KO CEO 2301 [email protected] Young Hwan General 82-2-416- Kuk Dong Wine Co., Ltd. CHO Manager 4391 [email protected] Kwang Myung Liquor 82-2-514- Co., Ltd. Chun Il LEE President 2003 [email protected] 82-2-802- Kwangwon Trading Hyun Il KIM Director 6400 [email protected] Ji Chan (James) 82-2-3497-
Les Vins De Maeil YOO President 6800 [email protected] Import 82-2-3463- Liquor & Joy Co., Ltd Soo Jin CHO Manager 7931 [email protected] Hee Young Assistant 82-31-979- Liquorvalley Co.,Ltd. JEON Manager 5757~8 [email protected] Deputy Lotte Chilsung Beverage Young Song General 82-2-3459- Co., Ltd. HAN Manager 1472 [email protected] Seong Ju General 82-2-6424- Lotte Liquor BG JEONG Manager 7350 [email protected] 82-2-824-
Luvin Corea Co., Ltd. Seung Ki LEE President 6606 [email protected] Jae Woong General 82-2-6300-
Macrocom Co., Ltd. JUN Manager 8181 [email protected] Joong Hyeop 82-55-264-
Malgeun Naeil PARK Director 0997 [email protected] Marketing 82-31-817-
MEG International So Ra SEO Manager 1629 [email protected] Seong Kwan 82-2-537-
Mo A Alcoholic Bank CHO President 2291~2 [email protected] Do Kyoung 82-1688-
Moutai Korea Co., Ltd KIM President 2663 [email protected] 82-2-2127-
M's Beverage Co, Ltd. Eun Ji LEE Staff 9860 [email protected] 82-70-7576-
Muhak Co., Ltd. Yeon Jin AHN Staff 2247 [email protected] Kyung Woon 82-2-407-
Mundovino YOON President 4642 [email protected] N.T.C. (National Trading 82-2-706-
Company) Seok Il LEE President 1616 [email protected] Jeong Hee General 82-2-405-
Nara Cellar Co., Ltd. (Jenny) PARK Manager 4300 [email protected] 82-2-2057-
Naru Global Co., Ltd. Sang Bong LEE CEO 7826 [email protected] 82-53-765-
New York New York Jung Sik PARK Director 3766 [email protected] Byeong Suk 82-2-545-
NIHON SHU KOREA YANG President 3251 [email protected] 82-2-6912-
Podo Plaza Hyuck KIM Director 7504 [email protected] Bong Hyun 82-2-353-
Podonamu Co., Ltd. YOO Manager 4578 [email protected] 82-2-550-
R. P. Corp. Sun Ae KWON Manager 8649 [email protected] SAB Miller Brand Korea Jeung Wuk 82-2-3019-
Co., Ltd. KIM Team Leader 6000 [email protected] Jeong Soo 82-2-521-
Samjin Core PARK President 1400 [email protected] Samkoo Wine 82-2-705-
Corporation Moon Jae JO CEO 0129 [email protected] Ho Young 82-2-553-
Sanmi Co., Ltd. BAEK President 6861 [email protected] Schmuker Korea Co., Young Hoon 82-31-793-
Ltd. KIM President 6947 [email protected] Jeong Han Managing 82-2-514- [email protected]/
SE&L Co., Ltd. (Ernie) CHIN Director 3102 [email protected] Segye Juryu Sangsa Co., 82-53-783-
Ltd. Tae Yong YEO Chairman 6333 [email protected] General 82-2-3446-
Sharp Trading Inc. Phil Soo CHO Manager 4160 [email protected] Ho Cheol 82-2-706-
Shin Han F & B Co., Ltd JEONG President 1541 [email protected] 82-2-794-
Shindong Wine Co., Ltd. Jong Hoon LEE President 4531 [email protected] Planning General 82-31-223-
Shine Trade Korea Co. Gi Hwan LEE Manager 4448 [email protected] Choong Goo 82-2-727-
Shinsegae L&B Co., Ltd. JEONG Team Leader 1971 [email protected] Soo Hwan(Joshua) General 82-2-2276-
SPC Co., Ltd. KIM Manager 5680 [email protected] Sunbo Liquor Trading Soon CHoong 82-2-2233-
Co., Ltd. KIM President 9610 [email protected] Sunil Trading Seung Sun 82-2-757-
Corporation PARK President 7831 [email protected] Yil Han (Albert) 82-2-777-
Sureung Corp. LEE CEO 5589 [email protected] Deputy Taesan Liquor General 82-31-722-
International Co., Ltd. Soon Hae CHOI Manager 0167 [email protected] 82-70-8683-
Tamburlaine Dae Seong LEE Team Leader 5234 [email protected] 82-2-752-
The Odd Wine Geun Tae KIM CEO 9111 [email protected] 82-2-577-
The Wine Co., Ltd. Soon Pil KANG President 9822 [email protected] 82-31-974-
Vin de Vin Co., Ltd. Seok Ho LEE Director 1960 [email protected] 82-2-2253-
Vinideus Korea Jae CHON CEO 0035 [email protected] Eun Myung 82-2-479-
Vino Vino Co. HONG CEO 2341 [email protected] 82-2-511-
Vinokims & Co. Joo Young KIM Director 3280 [email protected] Myung Jin 82-2-574-
Vintage Korea Co., Ltd. PARK President 1999 [email protected] 82-2-752-
Vitis Co., Ltd. Woo Sung HAN Director 4105 [email protected] Hyun Chang 82-32-583-
Wagner Korea, Inc. SHIN President 6626 [email protected] Chang Kwon 82-2-545-
Wine for U KIM President 5816 [email protected] 82-2-353-
Wine Tree Co., Ltd. Ki Ok YOO President 4578 [email protected] 82-31-705-
Wine2U Korea In Quen LEE President 7169 [email protected] 82-41-337-
Winekit Korea Jae Min JEONG CEO 9584 [email protected] Chief 82-2-549-
Winenara Co., Ltd. Jin Ho SON Professeur 0140 [email protected] Han Seok 82-31-777-
World Juice Inc. (Harold) LEE Director 3466 [email protected] 82-51-532-
World Wine Ki Won KIM CEO 8181 [email protected] Worldzone Deok Kyoung 82-2-574-
International Co., Ltd. LEE President 1631 [email protected] 82-2-3210-
Yeonil Yun Jung CHOI President 7710 [email protected] 82-2-385-
Youngnam Co., Ltd. Sung Geun KIM President 7225 [email protected] Jeong Hoon 82-31-556-
Zennihon Juryu Co., Ltd. SEO President 3207 [email protected]
Appendix 3: Official Beer Importers in China.182
Company Name Brands or Products for Company Website Import Shanghai Ted Foodstuffs Beer from Germany and http://www.eurocity.com.cn/ Development Ltd Netherlands (Netherlands Heileke and German Caesar) Pinlive (Shanghai) Foods Co Valentins Weiss beer, http://www.pinlive.com/ Ltd Apostelbrau and Königsbacher Shanghai Foodstuffs IMP & Poultry, wine, olive oil http://www.shfiec.com/news_detail.asp?articleid=2 EXP. CORP and beer from America, Brazil, Japan, England and Korea Bright View Trading Ltd Distribution of http://brightviewsh.cn/ international level brands to the top grade wine shops, supermarkets and hotels Chengdu High-tech Beer brands: http://www.coimp.cn/ Comprehensive Bonded Benediktiner, WGR Pils, Zone Coimp Imported Food Thüringer and Eichbaum Company Chengdu Dezun Primarily German beer http://cdwittinger.net/ Handelsgesellchaft Ltd and French wine Chengdu Hengchang Wine German beer http://www.028yjh.com/ Industry Co Ltd Hoegarrden, Brauerel Simon, and also some brands from America, Brazil and Czech
182 British Craft Brewers Export Project Report. Retrieved from based on http://www.clementsmarketing.com/wp- content/uploads/2013/10/inet_project_submitted_report.pdf. Retrieved on 05.21.2015. Appendix 4: Parameters Examples.
Parameter 1 and 2: Beer.
Parameter 1 and 2: Whiskey.
Parameter 1 and 2: Gin.
Parameter 3 and 4: Beer.
Parameter 3 and 4: Whiskey.
Parameter 3 and 4: Gin.
Parameter 6: Vodka.
Parameter 6: Beer.
Parameter 6: Gin.