SEOUL, KOREA - As two large companies, Lotte and Shinsegae, declared entry into the beer market this year, it is expected that competition in the market will get fiercer. As it so happens, analysts are keenly watching which brand will take the leadership. According to financial investment sources on March 26, Lotte Group will launch a new beer line through its affiliate Lotte-Chilsung Beverage before the end of the first half this year.

 

The initial output would be 50,000 kiloliters a year, followed in the second half by 100,000 kiloliters. Given the total beer market is about 2 million kiloliters, Lotte's expected market share by the year's end would be 5 percent. The company will increase the capacity to 400,000 kiloliters by 2017 at the cost of 700 million won. The type of beer Lotte will launch first will be larger, whose price will be slightly higher than those of other beers by incumbent players like Oriental Brewery and Hite Beer.

 

Shinsegae will also come up with its own beer brand this year. Shinsegae Food held a shareholders meeting earlier this year and voted to add "beer brewing" to the list of businesses it engages in. Instead of using distributors to sell beers, however, the company will rely on its restaurant chains such as Johnny Rockets and Bono Bono, focusing on producing mostly ale-type beer. That's because it takes too much time to build large-scale production facilities for larger-type beers.

 

Stock analysts are paying attention to how much marketing cost the two companies would spend on the beers. Depending on how much they spend to promote new beer brands, the reasoning goes, their share prices would be determined. Korea Investment & Securities analyst Lee Kyung-joo said, "In order to increase brand awareness, a large portion of the sales must be spent on marketing. Although marketing expenditure is an important spending item to improve market share and financial performance, it may depress the company's share price."

 

Paik Un-mok, analyst with KDB-Daewoo Securities, said, "We will know share price levels after watching how much marketing cost each company has spent and how well consumers have responded to the promotion." Some analysts commented that Lotte is in a more advantageous position than Shinsegae as the former has been distributing soju (Korean vodka) for a long time and is No. 1 in the import beer market as an exclusive importer of Japan's Asahi beer.