Market Information
Asia Pacific

6. Non-alcoholic Beverages

HS 2009 Fruit Juices and Vegetable Juices
HS2106-90-10 Bases for Beverage, Nonalcoholic
HS2201-10 Mineral Waters and Aerated Waters

1. Opportunities: Strengths and Attractions of the Korean Market

1.1. It's a Big Market

The total market size of the non-alcoholic beverage market in Korea in 1999 is estimated at about US$2.4 billion at March 2000 exchange rates. The total market size is estimated to grow by up to 2.9% in 2000 as the market recovers. This estimate was made by the Food Journal in early 2000 and is almost certainly too conservative in view of the rapid recovery of the economy. The drop in market size since 1996 represents a dramatic reduction in the consumption of juice during the crisis, and supply problems in the industry related to the bankruptcy of one of the big three beverage companies, Haitai Beverage. These circumstances will change in 2000, and the market could enjoy a rebound of up to 10%.

The total value of imports of juices, finished product and base materials for soft drinks including coca cola and mineral water was US$214.8 million. This represents only 10-11% of the total market. However almost all of this value was concentrate for bottling in Korea. The value of finished product imported into Korea was probably around US$5-10 million or less than 1%.

Table 1. Basic Information on the Beverage Market

The market can be divided into nine categories as shown in table 1. The two largest categories are carbonated drinks, which takes up about 40% of the market and juice based drinks which in 1997 exceeded carbonated drinks in value, but shrank in the crisis to only 60% of their former size

The market for imported non alcoholic beverage products appears large, with total imports in 1999 of over US$200 million. However almost all juice and base products were imported in bulk and bottled in Korea. By contrast total mineral water sales (almost exclusively from France) were only US$519,000.

A Canadian exporter is most likely to achieve success through a licensing or local bottling agreement.

Table 2. Non-alcoholic beverages/Value of US$ to Won

1.2. It's Recovering Fast

The Korean economy grew 10.7% in 1999 after a contraction of 5.8% in 1998. By December 1999 retail and wholesale sales were 10% above the December 1997 (onset of crisis) figures. First indications for 2000 are of a 12% growth rate in the first quarter and 7-8% for the whole year. Retail and wholesale sales are likely to be up 10-15% for 2000. Imported products are still going to be more expensive in won terms with the US$ at 1050 - 1150 compared with 840 in 1997 and 800 in 1996.

Korea has undergone dramatic changes during the last two years due to economic crisis, so that in general the imports of 1998 and 1999 declined after growth in previous years. In the case of HS2009 & HS2106-90-10, the peak was 1996. Imports in 1998 were only about half of 1996, but are likely to recover if juice drinking recovers.

Imports of mineral waters HS 2201-10 decreased rapidly in 1997 & 1998. Imports in 1998 were only about 18.5% of 1996.

1.3. Some Tariffs are Reasonable.

The tariffs on non-alcoholic beverages except for fruit and vegetable juices is 8%, which should not be a deterrent to imports. Fruit juice carries a 50% tariff and vegetable juice 30%.

As will be seen in section 2, it is not tariffs which deter the growth of imported beverages, except juice and vegetable drinks but instead problems in marketing and distribution.

1.4. Local Companies are Looking for Products

Korean companies are looking for new products in the beverage market. This includes pharmaceutical companies trying to extend into the food and health market such as HanMi Pharmaceuticals which has licensed the Snapple brand, and Nongshim which has been responsible for the success of Capri-sun.

Probably the biggest opportunity for a Canadian beverage company is a partnership based on licensing product and brand to a Korean company wishing to start or expand a beverage business. The list of companies which might be interested are all the pharmaceutical companies which specialize in OTC products and the dairy companies.

1.5. There is a Premium Sector

Three focus groups were conducted especially for this study of young women, women in their early thirties and those in their forties. The income range was moderate to do well. As food is almost exclusively purchased by women in Korea this was felt to give an indicative response to the issues arising from the products in question. The subjects discussed by the groups were food purchasing habits, attitudes to Canadian food and reaction to a small sample of products supplied by exhibitors to the Canadian Food Fair of March 2000. Further details are available from eabckr@kornet21.net

In general the premium product will go through the same channels as the mass product. Particularly successful is Kaya Company, a company which previously specialized in importing wines, in producing a range of 100% fruit juices which the Korean housewives feel is high quality and trustworthy. Unlike other food segments, the quality price margin is more of the order of 25% than 100%.

1.6. There is a Delicatessen Sector

The delicatessen sector exists in major hotels, select high class bakeries and a few select delicatessen stores.

Delicatessens can be used to "showcase" new health beverages and pure juice drinks. A better way to showcase beverages is likely to be a food show.

1.7. Koreans Seek Variety

The trend of the beverage market of the last five years after discounting the impact of the crisis has been for the consumer to seek new products in a series of "booms".

The latest boom is in slightly flavoured mineral water, following on the mineral water boom which lasted from 1992-1996. Between the two water booms was a "Fermented Rice traditional drink" boom. This is a well established pattern of the Korean market which in the 1980s invented a carbonated barley drink which briefly outsold CocaCola. Further details of current trends are to be found in section 6.1.

1.8. Importers and Customers Looking for Something New

Importers are looking for new ideas and new products. They are reflecting the fact that the Korean housewife is always looking for new and quality products. There are sharp difference between young Koreans and older Koreans.

Changing preferences

As in other food products, the Korean consumer seeks higher quality products. The evidence of the Korean market is that consumers are looking for quality at a reasonable price but do not distinguish between Korean made and foreign made since most juice is imported or sold under foreign brand names - Sunkist of Haitai and Delmonte of Lotte. Two imported products confirm this trend, Capri-Sun from Germany (which is now packed in Korea) and the decision of Nong-shim to sell Cheju Samdasu rather than imported mineral water based on price considerations.

Focus groups confirmed the preference of Korean women for better quality and different products. However non-alcoholic beverages have a much wider range of purchasers than many food products, especially children and young people of both sexes, and to a lesser extent older men.

Capri-sun's success was built on an extremely successful TV advertisement aimed at children, using the unique pack as a part of the promotion.

1.9. The Distribution System is Changing

The retail structure of Korea has been changing. Until now the distribution of non-alcoholic beverages has been through 130,000 stores plus perhaps 100,000 other outlets including restaurants, refreshment stands and kiosks. The volume of sales through small outlets continues to be high. The major feature is the rapid growth of hypermarkets, several of which are foreign owned and might be more willing to take or showcase foreign products.

The only hypermarket actively soliciting foreign business is at the time of writing Costco which has only three outlets. Only container loads will be accepted.

For Canadian beverage products producers to exploit this opportunity they must make contact with the purchasing departments of the chains. However if the product does not yet sell in Korea, there will be a demand for heavy advertising support. There will also be placement fees. It has been estimated that the overall percentage of Fast Moving Consumer Goods(FMCG) passing through the hypermarkets could reach 40% within 3-4 years.

For beverages it is unlikely to reach this level. Portion pack drinks in the 250ml - 330 ml size are heavily concentrated in small stores and CVS outlets and will remain so. Family sized products, typically 1.5 litre PET bottle will increasingly go to the hypermarket or CVS because of the lower price.

The main impact will be on large supermarkets and some small supermarkets and Ma and Pa shops. However Korea is a high-density country and consumers prefer to shop at the supermarket within their apartment complex or near their home rather than travel for 40 minutes to an hour each way to a hypermarket. Discount Stores seek low priced items and therefore tend to stock lower quality products.

Table 3. Market Size of Hypermarkets

In provincial areas and cities the share of hypermarkets appears to be significantly higher than their share in Seoul. This is the conclusion from Taylor Nelson Sofres consumer panel purchase data which samples good households every month.

Hypermarkets biggest threat is e-commerce working through the convenience stores. This is a model of e-commerce developed in Taiwan and Japan and about to be applied in Korea, where the consumer pays and receives their order at the local convenience store. Lotte aims to be the leader in this having bought 7-11, Lawson and Best Store. The press reports Lotte will also seek to buy the LG-25 chain, giving it a new monopoly.

Table 4. Status of Convenient Stores (CVS)

Source: Food Distribution Year Book ((1) Excluding e-commerce effect)
* Voluntary chain convenience stores do not belong to the major chains and do not have central distribution

CVS sales are much more concentrated on convenience foods than hypermarkets which sell more household products. For portion pack beverages, CVS probably sell the equivalent of 30% of the value sold by hypermarkets.

Some authorities believe that in Korea this model will overtake the hypermarket model, which means that the amount passing through the hypermarkets will not reach 40%.

For beverage products, the opportunities to exploit this new form of retailing depends on relations with the retail chains, since they practice central distribution.

Creating business opportunities out of these changes will not be easy in the beverage sector without close relations with the hypermarket and e-market chains. This cannot be done at a distance or by fax or e-mail alone, though an attractive website will help. The website should contain products, ingredients, specifications, minimum order quantities and packaging alternatives

The growth of the hypermarkets, convenience stores and e-commerce clearly offers a future opportunity for Canadian exporters. However accessing hypermarkets at the present time will be difficult.

Hypermarket

Opportunities: 

• Hugely simplified sales channel
• Access to very large market share

Problems: 

• Chains are exclusive about products
• Demand high discounts
• Demand advertising and promotion support

Accessing CVS stores is much simpler as CVS are always willing to churn product to put something new on the shelf alongside the best sellers. This gives a narrow window of opportunity to prove that the product will be a best seller.

CVS

Opportunities: 

• Simplified sales channel
• Access to a sizeable market share
• No resistance to new products

Problems: 

• If product does not sell well, then will be replaced.
• Supplier will probably be asked to take back unsold product
• Advertising campaign to back up window of opportunity required

If access to the hypermarket or e-market system is achieved then sales should grow rapidly. This will require considerable work to build relations and incentives with the buying chains.

2. Weaknesses and Discouragements

2.1. Fruit and Vegetable Juice still have High Tariffs.

Tariff rates are gradually being brought down under WTO agreements. However juice rates are amongst the highest at 50%. The import of orange juice used to be under quota arrangements, and the import of juice still appears to have some anomalies related to the past. Vegetable juice and tomato juice have a rate of 30%.

Would be juice exporters should work closely with their importers and the Canadian Embassy as this is a fluid situation which could change. In particular exporters should consider building the brand with a juice flavored drink, and keep the 100% juice as a premium item for later.

Table 5. Price per 1000ml

Note: Price sold to discount stores

2.2. Brands Must be Built.

Korean consumers are unlikely to buy an unknown brand. Capri-sun built a brand over time and at great expense. Nongshim state that if the German company had not been willing to pay the initial promotion cost, and to allow Nongshim to make a TV advertisement to Korean taste, they would not have handled the product.

2.3. Korean Competitors are Strong

The following three tables 5,6,7 show the size of market for particular products and indicate the relative strength of major companies.

Table 6. 100% Natural Fruit Juice Sales by Companies

Table 7. Less than 100% Juice Fruit Drink Sales by Companies

Table 8. Carbonated Drinks Sales by Companies

Further details can be found in the statistical appendix 2. It can be seen that the market share of "others" is very small, and that even Coca Cola cannot achieve a reasonable market share. (In Korea Pepsi is bottled by Lotte Chilsung).

2.4. Distribution Tends to be Tied to Manufacturing Company

Each of the companies named in 2.3 has their own proprietary distribution system of logistics, sales force and exclusive agents. This represents a considerable barrier to practical mass distribution of new beverage products except in partnership with a Korean manufacturer. As a result there are few professional distribution companies which can achieve national distribution. The estimated percentage of retail sales by type of outlet for beverage is as follows:

Source: Trade and Industry Interviews

Accurate figures for distribution by channel are not readily available for these products as neither AC Nielsen which is the major source of store audit information, nor Taylor Nelson Sofres which is the major source of consumer purchase audit in Korea have data in all there categories in the public domain.

The trade estimates that about 20% of total sales are to the Hotels, Restaurants, Institutions(HRI)

2.5. No Korean "Canadian Image"

The Korean consumer does not have a strong image of Canadian product as opposed to US, European or Australian product. Focus group work showed that Korean housewives and young people generally had a good expectation of Canadian food products. They were generally disappointed in the product itself and particularly the packaging which was found to be not attractive nor to Korean taste.

Koreans prefer Korean products. Conventional amongst multinational food companies' wisdom is that Koreans will tend to buy "bottled in Korea" although they can be tempted by attractively presented and made to taste products if the consumer is convinced that the product is superior.

2.6. Must Be Container Load

The minimum unit of sales into Korea is the container load. The Canadian exporter must find a Korean partner willing and able to distribute a container sized consignment or work with a Canadian consolidator who can arrange port loads.

2.7. Inspection Procedures Can Be Trouble some

The Korean customs and quarantine system work on a "reliability" basis. A new importer, a new exporter or a new product will normally attract a full inspection, which should take a maximum of 18 days including any relevant testing. Once the bone fides of the importer, exporter and product are established, documentary inspection should be sufficient and the product should clear within 5 days.

Importers of all food products report occasional disruptions due to new procedures, new officials or complaints from competitors.

3. Strengths

3.1. Price

The Canadian product has an advantage of price of raw materials compared with the Korean manufacturer. The price per kg in Table 4 will give an indication of how expensive the Korean product is. A rough check on the landed Korean retail price for a Canadian beverage product is that it will be 1.9 times higher for non juice products, and 2.65 times higher for juice products than the Canadian FOB price, but Korean products are selling at a discount price from time to time, particularly during sales promotion periods. Korean consumers will not be deterred from paying a premium and will expect premium to be reflected in the price.

3.2. Range of Products

A range of products in Korea is of little value without a brand awareness. Nevertheless a range of products and the associated know-how can be attractive to prospective licensing and bottling partners.

3.3. Quality

Imported products can be projected as higher quality, and therefore more suited to the premium quality.

Customers stress quality, trust and freedom from preservatives and additatives as the key issues in choosing a product.

3.4. Potential to Create Canadian Image

In discussion in focus groups conducted for this study the Korean consumer has a high, but unclear, expectation about Canadian products. There is a strong potential to create a "Canadian" image in the mind of the consumer but this cannot be done by a single food manufacturer alone, but could be developed to the benefit of many Canadian producers on a collective or collaborative basis.

4. Threats

4.1. Well Established Competition

Major Korean competitors already have established systems and relationships. The Korean companies have been listed earlier in 2.3.

The dominance of Lotte is such that they are almost able to lock out small competitors from many distribution channels if they feel that competition is too severe by threatening not to supply their products. This is likely to be more effective once the takeover of Haitai Beverage by Lotte is complete.

The two former competitors attempted to divide distribution to smaller shops so that each company served about 50,000 outlets exclusively. CocaCola, the major competitor serves about 80,000 outlets, but has until now offered a narrow range of products.

Lotte is likely to produce an imitation product of a successful item and produce them at a price and quality which cannot be matched by an importer. Coca Cola had to fight a long court battle to stop Lotte selling a carbonated drink Sprint, a similar taste product to Sprite. (In the Korean alphabet the English brand name is almost identical).

The good news is that the product managers in these companies are mainly watching their local competitors, and a product would have already achieved a considerable market share before a competitive product is likely to appear.

5. Market Strategies

The Korean beverage market is a relatively difficult market to get started in. It requires investment, knowledge and patience. Until a secure marketing organization is set up it cannot be an orderbook market. To establish a presence in the Korean market will require proactive measures by the Canadian exporter. Unless any investment in the market is well planned, the development of long term business in the beverage sector is not likely to be attractive. The following set out possible approaches to the Korean market and the kind of investment needed.

5.1. Looking for a Niche Market

Creating a mass market takes time and money. A Canadian exporter will start by seeking a way to establish a niche market. The following table shows the price build up for beverage products, and the potential exporter can multiply through his product to obtain an idea of the potential retail price in Korea and compare it with competitors. The following table shows the price build up to the store price for beverage products.

Retailers attempt to return out of date stock and an allowance for returns must be made of 2-3%.

For a niche market approach the company would either use an agent or import and distribution company. In the case of an agent he would be responsible for finding a freight forwarder and physical distribution. The following companies are interested in increasing their portfolio of imported goods and have a good reputation in the trade.

All are Korean companies except Edward Keller, which is a subsidiary of a Swiss Trading firm. All have a good track record in starting up imports of new food products. The other companies importing beverage are listed in the appendix and could be approached.

In the beverage market, a niche market could be considered as established when about one container a month is moved, and the product sells in a consistent manner from the same set of outlets over a sustained period of one to two years.

A good example of a niche market strategy is Capri-sun handled by Nongshim. Capri-sun was initially imported from Germany by Nongshim. Capri-sun has a distinctive metallic pouch package unique in Korea, with a strong colour, and is a low juice content drink. Its success was built on willingness to spend on advertising aimed at children and on the "stand-out" package on the shelves.

Once sufficient sales had been achieved, Nongshim began packing in Korea to lower the cost. (Nongshim is an instant noodle and snack company, one of the largest in Korea, which also handles a range of imported food items).

5.2. Looking for a Mass Market

The pricing structure of the Korean market is such that a mass market in imported beverage product could be created if the FOB price can be competitive.

A mass market means success with a brand name which can be supported by advertising and trade promotions. A brand name can only be established with the Korean consumer through intensive TV advertising geared to Korean tastes. To achieve this, it would normally be necessary to find a large company which will to act as partner/distributor.

In both cases, the willingness to invest in advertising and promotion will be essential and a first year budget of US$3 million might be appropriate.

Without a Korean bottle, no product produced by a Canadian beverage company is going to get to a mass market without first establishing a niche market position. Using a Korean bottle will lower the price of the product to the consumer, simplify logistics from Canada, handle local distribution and share the risk. As noted many Korean pharmaceutical companies, dairy companies and some food companies such as Cheil Jedang are seeking new products at the present time. (for a prospective list see existing importers, Appendix 3 other possible importers Appendix 5.)

The new distribution systems described in section 1.7 are only affecting about 15% of the market for beverages at the current time. (25% if CVS are classed as new distribution systems as well).

This means that at the present time to reach up to 77% of the market, the old distribution system must be used, which is in the hands of the large competitors.

Only one hypermarket, Costco, is currently a major importer. Costco has only three outlets and naturally wishes to be sure that a container load can be sold.

To seek a mass market, the Canadian exporter of beverage product will need a Korean partner already in the beverage or food business and is likely to have to move to local production or licensing for its major product(s). Possible partners are dairy and pharmaceutical companies which are likely to have the equipment needed without further investment and distribution systems, and are looking for new products.

Case Study

The rise of Capri-Sun: Capri-Sun is a German juice flavour drink sold in a retort pouch. It was imported by Nongshim from 1995, one of Korea's biggest food companies with no beverage experience. Capri-sun agreed to Nongshim's proposal to TV commercials targeted at children.

An amusing ad, a unique and colorful pack produced massed distribution and sales, including multi packs(unusual in Korea) led to mass market sales mainly through CVS and supermarkets. To achieve higher margins Nongshim set up a Korean filling line. Sales per annum estimate 15 -20 billion won.

5.3. HRI Market

The HRI market is a dispersed field, but generally has a large number of independent wholesale agents supplying restaurants and food outlets. Although the HRI market may handle up to 20% of beverage sales, the range of products available is much smaller. Almost no legally imported non alcoholic beverage or mineral water is currently sold in the HRI sector.

The one possible exception is in vegetable juice, where the KTSC can obtain a reduction in tariff for hotel supply. The KTSC is the major supplier of hotels. It does not have an exclusive right, but has the widest distribution to more than 700 hotels and tourist restaurants. KTSC would be the first contact to make if seeking the HRI market.

5.4. Alternative Approaches

The hypermarket sector is growing, but it is predominantly using domestic product. The following are "breakthrough" strategies.

E-commerce

According to surveys 81% of Koreans have visited an e-shopping mall and 51% have bought something. Inclusion of product in a company's cybermall requires very little stock and no shelf space. This is a business still in its infancy. The biggest cyber shopping mall is run by Lotte Department Store, but there are currently 139 other malls to choose from.

Many Korean and foreign companies hold promotions and events to attract a select group of customers. Such companies include producers of sportswear, sporting products, educational companies and other "activity" groups.

Like similar promotions in other countries, these event organizers look for unique or theme products which can give those attending a special sense of community. An unusual drink with a distinctive packaging can be an alternative or supplement to T-shirts, key rings or other items.

6. Do you measure up to the Korean market?

This section allows you to measure your ability against the Korean market without further investment.

6.1. Product

Do you have a product which fits the Korean market in terms of taste and SKU size? The preferred portion size in Korea is:

Family size is almost universally 1.5 ml PET. Some l liter packs are used. It is advisable to test for sweetness - Koreans have a less sweet taste for many items than Japanese or Americans, and the acceptability of aspartame rather than sugar is low. The Korean reaction to any individual product cannot easily be predicted, and should be tested.

HRI will take catering packs, and premium products could have other sizes. Koreans have very particular tastes.

The following illustrate current trends in the beverage market against which Canadian products can be measured.

The Beverage Market in 1999

• Total market size: 2,360 billion won (growth rate: 3.5%)
• Beverage market in 1999 was the year in which the economy recovered from the IMF crisis due to stable exchange rates; interest rates and a consumption increase in response to business recovery.
• There was a remarkable number of launches of new products and failure of existing products due to rapid changes of consumption patterns and life styles after the IMF crisis.
• There were many changes such as the overseas sales downturn of Haitai Beverages Co. Ltd and Coca-Cola's product contamination crisis in Belgium.

Carbonated drinks

• Market size: 980 billion won (growth rate: 10%)
• The market increase of carbonated drinks was a product of the growth in the soda pop and flavored drinks markets. A secondary factor is that carbonated drinks are cheaper than juice.

Soda pop

• The Soda pop market increased more than 10% due to Lotte Chilsung Co. Ltd's active marketing such as a soda pop & cola comparison advertisement & promotion campaign.

Flavor drinks

• Fanta of Coca Cola Korea & Mountain Dew (new product) of Lotte Chilsung Co. Ltd have shown high growth in 1999 due to active marketing & the consumption preferences of the younger generation.
• Doolli Soda, Bbuyo Soda & Kkamjiki Soda attracted high sales in the first half of 1999 due to their promotion in the younger age markets.

Cola

• The Cola market has shown no growth in 1999 due to Coca Cola's contamination crisis in Belgium despite the aggressive marketing of Coca Cola Korea, Pepsi cola of Lotte Chilsung, 815 cola of Keonyoung Food and Combi cola of Haitai Beverage.

Juice

• The juice market has recorded a low growth rate (0.3%) in 1999 compared with that of carbonated drinks (10.2%)
• 1999 was the turning point for market growth recording a small increase in sales in comparison with the negative growth rate in 1998 of -35%.
• 100% natural orange & grape juice recorded big growth and will prove to be the key products in the juice market in 2000.
• Cold storage distribution juice was introduced in 1997. The market size is 100 billion won (Delmonte Cold Juice of Lotte Chilsung, Morning Juice of Seoul Milk & Country Juice of Haitai Beverage). These may prove to be the leading products in juice market in 2000.

Sports drinks

• Market size: 210 billion won
• Gatorade of CheilJedang, Pocarisweat of Dong A, Otsuka and Powerade of Coca-Cola Korea have recorded year on year growth. The reason for such continuous growth is the younger generations' continuous preference and aggressive advertisement & promotion campaigns.

Fruit Juice Water

• "2%" of Lotte Chilsung and Near Water of Namyang were high selling products in 1999.
• Both products were launched in April 1999. They enjoyed more than 25 billion won in sales last year.

Mineral Water

• The mineral water market decreased slightly due to the growth in fruit juice water products .
• Seoksu of Jinro, Sparkle of CheilJedang, Pulmuone Saemmul of Pulmuone take 60% of mineral market.
• Diamond, Idong Christal, Seorak, Sansu, Lotte Chilsung, Haitai, Yacult, Nongshim and Dongwon Industries are becoming new competitors.
• Imported mineral water failed in the domestic market. Companies withdrew that had imported foreign mineral water from 1995.
• Nongshim had decided to sell Chejoo Samdasu instead of imported mineral water.

Nearly all imported beverages were imported in bulk and bottled in Korea by Korean producers. Korean companies are more likely to license brands than imported finished product. Even bottled water imports rose only slightly, but remained at half their peak of 1996.

Prospects for the Beverage Market in 2000

The beverage market size will be about 2,400 - 2,500 billion won (growth rate: 7-10%) due to consumption increase & economic growth.

Cola

• Market size: 530 billion won
• Coca-Cola Korea will change the logo design & package and will strengthen consumer promotion .

Soda Pop

• Market size: 280 billion won(growth rate: 8 -10%)
• The growth rate of the soda pop market will decrease slightly compared with the 99' growth rate.

Flavor drinks

• Market size: 180 billion won.
• Various new products for the younger generations will be launched in 2000.

Juice

• Market size: 600 billion won (growth rate: 4 - 5%)
• The market will be more competitive due to small & medium companies' participation in response to import liberalization of condensed orange juice, entry of high quality foreign products and the shortening of products' life span.
• Coca-Cola Korea will start a cold storage distribution juice business in 2000.

Sports drinks

• Market size: 220 billion won (growth rate: 4 - 5%)
• Sports drinks market will be stagnant in 2000.

Mineral water

• Market size: 140 billion won (growth rate: 7.1%)
• Mineral water market will turn to growth in 2000.
• A preference for mineral waters & health drinks due to pollution concerns.
• The failure of small & medium companies will lead to market rearrangement with large companies dominating.

Imported finished products are not expected to greatly increase in volume in 2000, although imported bulk juice and other syrups and bases are expected to increase.

6.2. Partner

It is unlikely that any agent can establish a market for a Canadian beverage. If an agent is considered attention should be given to his proven track record, and to whether he has an organization which can deliver the product to the retail outlets, or whether he is only the first in the chain of middlemen. An agent who merely introduces the product to a large company may be of limited value. Note that the suggested price build-up in Table 9 allows for only two middlemen, an importer and a distributor.

Any potential Canadian exporter must look for a partner with an existing distribution system, which is already selling beverage or dairy products and seeking to expand its range.

It is highly likely that any successful relationship will turning into a licensing or bottling in Korea operation. Approaches to Korean companies should be conducted with this end in mind.

6.3. Package

Packaging has two elements, the type of package as described in 6.1 and the design of the label or other material.

Imported products which have done well in the Korean market have tended to have very distinctive packaging. A careful field study of existing packaging and how distinctive a competitive product the Canadian packaging will indicate the potential and whether adaptation is required.

A Canadian Company should be guided by its partner in the beverage market with regard to package choice and design.

If a Canadian product is to succeed in Korea with limited promotion support, it must have a very strong identity. It must distinguish itself on the shelves in terms of type of package and package design, as Capri-sun has done.

6.4. Pricing

Consumers agree that price is an important signal of quality. Importers and the trade agree that quality product may be priced at up to twice the basic price without damaging its appeal. Importers, distributors and retailers will expect to share in the higher margin structure and this is their incentive to carry and promote this product. Korean consumers are also willing to accept up to 25% higher prices for a quality soft drink product.

6.5. Willingness to Modify the Product

Koreans have strong ideas about the product.

While a Canadian product may be acceptable, an alternative taste may command a much higher sale. Where Korean companies have sourced product from overseas they have flown taste panels to the originating country to get the taste right

7. How Do I Start?

7.1. Start as Simply as Possible

No potential exporter of beverage products should start without a week long visit to Korea. But this first visit should be well prepared without committing to an agency relationship first. It should include visits to several large food manufacturers, hypermarket buyers, the KTSC and one or two major hotel managers, and others in the food business. For beverage companies a visit to Tetra Pak Korea is also recommended if the company's products can be packaged in Tetra Pak packages. This company can assist in finding local packers or in testing sample quantities of the product if it is available using this kind of pack in Canada. Companies should contact Tetra Pak Canada for details.

The preparations for a visit would begin with fax contact with selected importers to see whether they have an interest in importing beverage products from Canada. The list of importers is appended to this section and the importers are graded according to information currently available.

It is possible that even after a visit there will be a minimal response, and that one of two decisions must be made, to look for a suitable agent, or to attend a trade show or make an independent assessment.

• Agents may be found either by a professional consulting company, an embassy or a trade organization such as AFTAK.
• It is more likely that they will be the result of a trade visit. The Canadian Embassy reports that the recent food trade fair attracted about 450 Korean trade visitors. The next Canadian food trade fair will be held in Seoul in March, 2001.
• The final way is to make a special visit. This would normally follow on one of the other routes in any case. The aim of a visit should be to inspect the market for beverage, visit some of the potential partners and distributors.

Before leaving Canada an adequate supply of brochures and name cards (100 is not enough) should be prepared. At the same time at the start of the process, the company website should be reviewed. Current big Korean company and hypermarket practice is to look at the website on receipt of a fax or inquiry.

The Canadian company may be judged purely on its Canadian website and on this may hang the acceptance of a proposal for a meeting.

7.2 Attend the Next Canadian Trade Show

There is no better way to try to enter the Korean market than by exhibiting at the next Canadian Trade Show. In 2000 there were more than 450 visitors all interested in Canadian products. Importers could also exchange experience with one another and Embassy specialists.

7.3. Getting a Container Load Together

A single container of beverage products would require about 30 outlets willing to take the product, or a major promotion to move the stock.

The alternative is to share a container with an existing shipping in a consolidation move. Freight forwarders in Canada will be able to identify consolidation opportunities.

7.4. What to Watch Out For

Physically Getting the Product Cleared

Complaints about customs procedures on clearance for food products continue. Both Amcham in its annual report on business conditions in Korea and the Investment Ombudsman which handles business complaints find that arbitrary actions by quarantine and customs individual officers fill up their case books.

The first time is likely to be the worst and the following are the most common causes of delay:

• Paperwork not in order. The necessary documentation on contents are inadequate
• Korean labels proposed for the product are too small or do not conform to specification.
• Products tested reveal minimal trace elements of proscribed products.

The second and subsequent shipments should go through much more easily unless:

• Change in local official
• Change in local regulations

2000 is predicted to be more difficult than 1998-1999 because the rise in imports will encourage nationalistic officials to look for ways to create problems, meaning that due diligence will be even more important, to avoid problems.

7.5. Regulatory Issues

Korean regulations are notorious for their complexity and for changing frequently. Every attempt has been made to alert the Canadian exporter on possible problem areas, but inquiry should be made to the Embassy or to existing importers on whether there have been any relevant changes.

Trade Regulations

The importation of juice is governed by the WTO, Current Market Access (CMA) principle. Direct private import is allowed however, notice of the proposed import must be given except for an apple juice.

Tariff Rates

• HS 2009 Fruit Juices and Vegetable Juices
• HS2106-90-10 Bases for Beverage, Nonalcoholic
• HS2201-10 Mineral Waters and Aerated Waters

The tariff for fruit juices under is 50% in 2000.

The tariff for tomato & vegetable juices is 30% in 2000.

The tariff for bases for beverages, non-alcoholic is 8% in 2000.

The tariff for mineral water is 8% in 2000.

Inspection of Goods

Inspection of goods is or their labels / packaging necessary to determine:

• The value of the goods for customs purposes and their dutiable status;
• Whether the goods must be marked with the country of their origin or are in need of special making or labeling. If so, whether they are marked in the manner as prescribed;
• Whether the shipment contains prohibited articles;
• Whether the goods are correctly invoiced;
• Whether or not the goods are in excess of the invoiced quantities.

To be specific, customs officers will ascertain the quantity of goods imported, making allowance for shortages under specified conditions and assessing duty on any excess.

The showing of the contents of each package on the invoice, the orderly package of the good, the proper marking and numbering of the packages, and the placing of the corresponding marks and numbers on the invoice facilitate proper duty adjustment according to actual volume of goods brought in and the ascertainment of whether any excess goods are contained in the shipment. If any package which has been designated for inspection is found by the customs official to contain any article not specified in the invoice with fraudulent intent on the part of the seller, shipper, owner, or agent, the contents of the entire package in which the excess goods are found are subject to investigate for a possible violation.

Appendix 1. Further Information on Import Procedures and Regulations

1) Local customs Commissioners or Directors may deploy a special inspection team for fast processing for "fresh food". Processed meat should not be included as "fresh food" but the discretion of local authorities in case of chilled products should be noted.

2) In principle, the inspection should finish within 5 working days from receiving the import report. The imported foods etc. subjected to incubation test such as canned or bottled foods and retortable pouched foods, and the other imported foods etc. subjected to inspection by special order from the Commissioner of Korea Food and Drug Administration, are exempted from the processing date limit.

3) The test items for the laboratory inspections and the random sampling inspections for the imported foods, equipment and containers/packages are referred to in Appendix 4 Primary Laboratory Analysis List for imported foods etc. As noted this has not been applied to Korean processed meat products.

Inspection and Clearance Procedures for Foods

Diagram shows the inspection procedures.

The documentation required is:

a) Certificate of Quarantine by Orign Country
b) B/L
c) Import Declaration
Need to attachment of copy of Korean label
(manufacturing progress, Ingredient, shelf life)
d) Copy of Livestock Import Sales Certificate

1) Application for food safety inspection

Since the imported foods and domestic foods are regulated by the Food Sanitation Act identically, the importer would normally must make an application for a safety inspection to one of the six Regional KFDAs which are substructures of the Korean Food and Drug Administration (KFDA). As the pre-arrival application system was introduced in August 1995, an arrival application can now be conducted five days before the arrival of the shipment. In the case of processed meat this would normally be handled by the NVRQS.

The criteria and the types of inspection

a) Confirmation of safety

• Residual test for pesticides, antibiotics, heavy metals etc.
• Confirmation of micro-organisms
• Test of toxicological substances such as aflatoxin
• Perishability test

b) Confirmation of standards and specification

• Confirmation of meeting the standards provided by the Food Code
• Confirmation of additives in compliance with provisions of the Food Additives Code

c) Provision of consumer information

• Examination of labeling in Korean (nine items including main ingredient, etc.) to confirm the suitability of information for consumers

d) Ensuring the soundness of food

• Protection of sound dietary habits through the elimination of unsuitable foods

2) Procedures after rejection of food

a) Food that has not passed the KFDA inspection is destroyed except in the following cases:

• The food rejected is to be returned to the exporting country or converted for other use as non-edible products.
• When the sanitation hazard sanitation can be eliminated by processing, heating or selection after customs clearance

b) Inspection Procedure of Imported Food

Imported food import - Declaration - Food & Drug Administration - Regional Food & Drug Administration - Health and Environment Research(as needed) - Institute at City and Province - Document Test - Organoleptic Test - Laboratory Test - Random Sampling Test - Customs Office(Pass) - Customs - Clearance (In case of rejection: return to the origin or diversion to other use - destruction)

3) Improvement of the imported food product inspection system

a) Compliance Sampling Group (subject to mandatory laboratory testing):

• New-to-market products
• Products with a record of violation
• Products with prior information of sanitary risk
• Products falling under the health supplementary products of the ginseng products category, for which laboratory testing is compulsory.

b) Surveillance sample groups (Products random sampling for laboratory testing)

• Same products from same producer which passed the laboratory testing.
• Raw materials which a manufacturer imports to make his own product

Appendix 2. Import History and Data

Table 2-1. Fruit juices and vegetable juices (2009) Imports by Country 1996-1999

These imports tend to be bulk concentrate and not packaged goods.

Table 2-2. Bases for beverage, non-alcoholic (2106 90 10) Imports by Country 1996-1999

Bulk not packaged goods

Table 2-3. Mineral waters and aerated waters (2201 10) Imports by Country 1996-1999

Packaged, dominated by French Companies.

Table 2-4. Import by Country of Origin: 2009 Fruit juices and vegetable juices

Table 2-5. Import by Country of Origin: 2106 90 10 Bases for beverage, nonalcoholic

Table 2-6. Import by Country of Origin: 2201 10 Mineral waters and aerated waters

It can be seen that Canadian juices (HS2009) & Bases for beverage (HS2106-90-10) have a very low market share. Canada does not appear in the Table. In case of HS2009, US & Brazil are in the lead.

Mineral water imports(HS 2201-10) dropped to US$11 thousand in 1999 from US$23 thousand in 1998.

Distribution channel

• The marketing through distribution channels will be more important in 2000.
• Foreign advanced distribution companies entered in the domestic market; therefore distribution channels are changing rapidly. As their influence grows more Beverage companies will need to mediate their demands

Government policy

• The special consumption tax will be abolished from 2000.
• Reduction of environment improvement allotment
• These two facts will be an important variable in Beverage market. It will be helpful for carbonated drinks market, the mineral water market and companies profits.

Marketing

• High quality international products growth will be accelerated continually in 2000.
• Companies will need to create new demand and satisfy various consumers' desires.
• Marketing strengthening like package differentiation, database marketing, direct marketing and efficient sales management will decide the 2000 beverage market dominion.

Table2-8. Import by Country of Origin: 2009 11 Orange juice (Frozen)

Table 2-9. Import by Country of Origin: 2009 20 Grapefruit juice

Table2-10. Import by Country of Origin: 2009 30 1000 Lemon juice

Table 2-11. Import by Country of Origin: 2009 40 Pineapple juice

Table 2-12. Import by Country of Origin: 2009 50 Tomato juice

Table 2-13. Import by Country of Origin: 2009 80 2000 Juice of vegetable

Table 2-14. Import by Country of Origin: 2009 60 Grape juice (including grape must)

Table 2-15. Import by Country of Origin: 2202 90 2000 Beverage of fruit juice

Table 2-16. Fruit Juice Sales

Table 2-17. 50% Fruit Juice Sales by Companies

Table 2-18. Granule Drinks Sales by Companies

Table 2-19. Sales by Products of Soft Drinks

Table 2-20. Market Size of Mineral Water

Appendix 3 Importers

M = Mass Market
HRI = HRIà
No comment means small company only suitable for niche

M = Mass Market
HRI = HRI
No comment means small company only suitable for niche.

M = Mass Market
HRI = HRI
No comment means small company only suitable for niche.

M = Mass Market
HRI = HRI
No comment means small company only suitable for niche.

Appendix 4.

Source: Discount Merchandiser(Jan 2000)