According to Global Compass 2020 published by Wine Intelligence in August, South Korea is now the second most attractive wine market in the world, after being at number ten the previous year. So, what makes it so attractive and why has the market significantly increased from the previous year?
Wine Intelligence employs a range of economic and wine market measures to assess the attractiveness of 50 key wine markets, with a heavier weighting of importance in the wine market measures. This year they have included a new variable to reflect the effects of COVID-19 on each market. Based on these factors, they give each market a score out of 10 (see Figure 1).
Figure 1: Global Wine Market Attractiveness Scores with COVID-19 impacts
Source: Wine Intelligence
The rise of South Korea in the rankings is due to a combination of an increase in its attractiveness score as well as a corresponding decline in the scores for a number of other markets.
The impact of COVID-19
One of the main reasons for the rise in the rankings is that – similarly to some other Asian countries like Vietnam, Thailand and Singapore – the number of COVID-19 cases and resultant deaths in South Korea has been relatively low (at the time of the Wine Intelligence report there had been 305 deaths and 14,626 cases).
Past experience with epidemics, such as SARS in 2003, meant that South Korea was relatively well-prepared to deal with the outbreak of COVID-19. This does not mean that South Korea is likely to completely escape the negative economic impacts of the pandemic. The International Monetary Fund (IMF) has estimated that the country’s gross domestic product (GDP) will fall by 1.2 per cent in 2020. However, of the 50 markets analysed by Wine Intelligence, this still places South Korea at number 6 in predicted GDP growth in 2020. In comparison, the IMF has forecast the United Kingdom’s GDP to fall by 6.5 per cent and the United States of America (USA) by 5.9 per cent.
Wine consumption on the rise
One of the main factors for the high ranking of South Korea has been the growth in wine consumption over the past decade (see Figure 2).
Figure 2: Still wine consumption volume in South Korea – historical and forecast (‘000 9L cases)
From 2014 to 2019, still wine consumption in South Korea grew at compound annual growth rate of 5.2 per cent (after growing by 4.7 per cent per annum between 2009 and 2014). While the size of the market is relatively small at 4.3 million cases, only Russia, India and the United Arab Emirates recorded stronger growth rates over the period.
South Korea is the third biggest destination for still wine consumption in Asia behind China and Japan.
While the IWSR, as for many markets, has forecast a decline in still wine consumption in South Korea in 2020, they have forecast consumption to grow by 3.3 per cent from 2020 to 2024.
There is upside in still wine consumption in South Korea due to its comparatively low per capita consumption rate. In 2019, the rate of consumption was 0.9 litres per head, compared to 25 litres in Australia and 12 litres in the USA.
Opportunities for Australian wine
According to the IWSR, Australia is the seventh ranked country of origin for still wine consumption in South Korea. Australia has a free trade agreement with South Korea.
The Korea–Australia Free Trade Agreement (KAFTA) came into force on 12 December 2014 and eliminated the 15 per cent tariff on all wine. Australian exports to South Korea have recorded consistent growth since then. From 2013–14 to 2019–20, the value of Australian exports to the country grew by a compound annual rate of 18 per cent (see Figure 3).
The advent of COVID-19 has not negatively impacted on exports to South Korea, with the value of exports growing by 15 per cent in 2019–20. The average value also grew during the year, up 4 per cent to $58 per case free on board (FOB). Almost 40 per cent of the value of Australia’s exports to South Korea were priced at $90 or more per case.
Figure 3: The value of Australian wine exports to South Korea over time (A$ million FOB)
Source: Wine Australia
Currently, there are 136 Australian companies exporting to South Korea – a mix of small, medium and larger exporters. There are now double the number of companies exporting to South Korea than in 2013–14.
While South Korea is the 15th biggest destination for Australian wine exports, according to the Department of Trade and Foreign Affairs, the country is Australia’s third largest export market for all commodities, largely due to the county’s dependence on imported energy, resources and agriculture. It is also Australia’s fourth largest two-way trading partner. This strong trade relationship further strengthens the attractiveness of South Korea as a market for Australian wine exporters to consider.
Next week, Wine Australia examines another emerging market that has climbed the attractiveness rankings – Poland.