A closer look at Australia’s wine exports to South Korea

South Korea was ranked the second most attractive wine market in the world in 2020 according to Wine Intelligence. Now, it has jumped from Australia’s 15^th export market by value to 10^th in the past 12 months. This Market Bulletin provides a profile of the market from economic performance, the growth of wine consumption during the COVID-19 pandemic, to Australia’s performance over the past six years since the Korea–Australia Free Trade Agreement came into force.

Economic recovery

Although it is currently going through its fourth – and worst – COVID-19 wave yet, South Korea’s economy has fared remarkably well through the pandemic. In 2020, the GDP managed to only dip by 1 per cent, year-on-year, compared to Australia with a 2 per cent decline and Japan with a 5 per cent decline^[1]. South Korea’s GDP has managed to grow by 5.9 per cent year-on-year in the second quarter of 2021. GlobalData, a data and insights provider, has ranked South Korea second highest as far as economic recovery post-COVID-19 (after Singapore), mainly due to its GDP growth, low number of COVID-19 cases, and low unemployment rate.

Beer and soju lead the alcohol category

During the pandemic, total consumption of alcohol declined by 3 per cent to 408 million 9-litre cases year-on-year in 2020. Beer and soju remain the overwhelming beverages of choice among South Korea’s alcohol consumers.

Figure 1: Types of alcohol frequently consumed South Korea 2014–20

However, during the pandemic, at-home consumption changed some alcohol consumer preferences towards grape-based wine. Consumers switching from drinking soju and beer with colleagues after work to drinking wine at home lead to the volume of wine consumption growing by 21 per cent during 2020, building on top of the already excellent growth rate of 6 per cent on average per year between 2014 and 2019^[2].

Wine accelerates growth during the pandemic

South Korea’s wine market is currently 5.8 million 9-litre cases in volume, worth just over US$1 billion in retail value. According to IWSR, the market is expected to grow by 2 per cent in volume and 3 per cent in value on average per year over the next 5 years.

Figure 2: Volume and value of wine consumption in South Korea

^{Source: IWSR}

The increase in wine consumption is mainly due to two factors. First, per capita consumption has risen from just over half a litre in 2012 to just over a litre in 2020. There are also more wine drinkers overall; according to Wine Intelligence’s South Korea Wine Landscapes Report 2021 (available here for Australian wine grape levy-payers and exporters) there are 6 per cent more wine drinkers in 2021 than 2017,  and there has been a 31 per cent increase in weekly wine drinkers over the same period.

Figure 3: Per capita wine consumption in South Korea (litres per person per year)

^{Source: IWSR}

Not only is the volume of wine sales growing, but it is the premium part of the market driving growth. In the last year, premium wine (defined as 40,000 South Korean won per bottle or higher) grew by 28 per cent, compared with 19 per cent for commercial wine.

Figure 4: Volume share of premium wine sales

^{Source: IWSR}

Ninety-three per cent of the volume of wine sold in South Korea is imported wine. Chile is the most popular source, with a 28 per cent market share by volume. Italy, France, and Spain all have very similar market share, while the United States of America (US) sits at fifth place with 9 per cent market share, and then Australia at sixth place with a 6 per cent share.

Figure 5: Sales volume by country of origin, 2020, Thousand 9-litre cases

^{Source: IWSR}

By value, France did rank higher in previous years but has since been overtaken by Chile in value as well (see Figure 7). All origins have grown over the past year, but Chilean wines have had particularly strong success due to the search for value-for-money during the pandemic.

Figure 6: South Korean wine imports by retail value

^{Source: IWSR}

Australia builds on growth post-FTA

In December 2014, the Korea–Australia Free Trade Agreement (KAFTA) came into force. The result was an immediate elimination of tariffs on all wine from Australia. This brought Australia onto a level playing field with many of its competitors, including Chile, the European Union, and the US who already benefitted from zero tariffs^[3]. Since that time, Australian wine has enjoyed steady growth in exports to South Korea.

Figure 7: Volume and value of Australian wine exports to South Korea

^{Source: Wine Australia}

As illustrated in Figure 7, the 12 months to June 2021 saw this growth accelerate dramatically. Exports to South Korea grew by 111 per cent in value to $45 million Free on Board (FOB). Part of the reason for this growth is the increase in wine consumption in South Korea in 2020. However, the growth also accelerated even further in the period between January and June 2021, indicating that South Korea has now become a target market for more Australian exporters since the imposition by China of tariffs on Australian wine.

In the year ended June 2020, there were 136 exporters to South Korea (up 9 per cent from the previous year) and in the year ended June 2021 there were 156 (up 15 per cent). Further detail about exporter performance can be found on Wine Australia’s Export Dashboard.

In another positive sign, premium Australian wine is leading the charge. The average value of exports grew by 10 per cent to $7.17 per litre in the year ended June 2021. Exports above $5 per litre FOB grew by 161 per cent to 4 million litres, while exports below $5 per litre also grew, at 30 per cent (see Figure 8).

Figure 8: Volume (million litres) and share of exports below and above $5/litre

^{Source: Wine Australia}

The growth was shared around many of the top varieties, with stand outs being Shiraz and Chardonnay, up by 116 and 135 per cent respectively. Still red wine now makes up 79 per cent of the volume shipped to South Korea, compared to 74 per cent in 2014. Still white wine has increased from 14 per cent to a 16 per cent share. This has come at a cost to sparkling and carbonated wine, which declined in share from 9 per cent to 3 per cent over the same period. The remainder is made up of dessert, fortified, and rosé wine.

Figure 9: Exports to South Korea by variety label claim

^{Source: Wine Australia’s Export Dashboard}

Part of Australia’s success in the South Korean market is that the perception of Australian wine keeps rising among wine drinkers. According to an annual study by Wine Intelligence, commissioned by Wine Australia, South Korean wine drinkers’ quality perception of Australian wine has increased from 6.51 (out of 10) in 2017 to 7.23 in 2021. This represents the largest growth over that period in the markets measured (mainland China, Hong Kong, Japan, Singapore, South Korea, Canada, US and the UK). Additionally, the percentage of wine consumers who associate Australia with expensive and fine wines has grown by 29 per cent in 2017 to 44 per cent in 2021.