Why do people share
one kind of alcohol until they get drunk
For the whisky industry, 2021 has been a year of overlapping expectations and anxiety for future market recovery, with a 32% rise from 2020, when Korea recorded the lowest imports of alcohol since 1999 due to the COVID-19 crisis.
At the end of last year, we talked with business leaders of the whiskey brands and identified their concerns about how to develop the home liquor trend for consumers in their 20s and 30s boosted by the pandemic into an opportunity to create a lasting relationship between them and whiskey products.
While contemplating a whiskey-oriented value proposition such as discovering a new taste, they failed to establish a clear direction and eventually started brand activities in 2022 featuring celebrities in their 30s who are a generation younger than the existing models.
The whiskey industry has successfully used age as the criteria for its core value proposition to generate revenue for a long time. It is because the ripening time is the key to value differentiation. The question is about the reaction of this new target generation towards the hierarchy that rules that industry.
The distribution structure for optimal revenue generation that whiskey producers have been building is maintained based on a set of entry-level whiskeys and a limited number of premium whiskeys. This value-differentiated product sales structure is passed through wholesalers and liquor shops to consumers who are end-users, and the inequality to secure premium whiskeys that occur within this is experienced as an unavoidable factor.
And this is linked to the quiet avoidance of the existing hierarchy and the characteristics of later millennials and Generation Z, who are active in creating a new order, which could be a barrier to creating a lasting relationship with whiskey products.
Of course, even if such provisional factors are excluded, the decline of the whiskey market sales in Korea has been steadily progressing even before the pandemic.
For Koreans, drinking parties have traditionally been the main stage for mutual identification of hierarchy within social relationships. These include the social practice of turning one’s head and drinking alcohol poured by the seniors or filling a glass empty by seniors and forcing it to drink to subordinates.
Hospitality culture, a product of the government-led economic development of the 1960s and 1970s, was an essential condition for business success in Korea, which was in line with the growth of entertainment culture, which is strongly connected with the development of covert consumers of whiskey products such as room salons.
These corporate entertainment expenses were recognized as a more effective means of increasing sales than marketing expenses based on the Korean Society for Industrial Management data in 2013. However, in the 2010s, the government began to take action against this hospitality culture between public officials and businesses, contributing to the decline in whiskey sales. Korea’s hospitality culture among companies, which also caused the replacement of the CEO of Uber, is now gradually changing its form into the culture, leisure, and sports. So spending on drinking and entertainment expenses continues to fall from the past.
The question is about the new expected main stage for the revival of the current whiskey industry. Whiskey consumption at bars, which relies on hospitality and entertainment culture, has been already challenging to predict as explosive sales as before, and Diageo’s decision to sell the ‘Windsor’ brand can be a piece of evidence of the reality of this industry.
The sale of the Windsor brand announced on April 22 is an unprecedented M&A case in that it targets not only distribution but also the brand itself, with a total acquisition price of one hundred and sixty million dollars.
Considering that this whiskey brand ‘Windsor’ was one of the most successful brands that occupied 70% of the domestic whiskey market share in the 2000s and provided three hundred and sixty million dollars in annual sales to Diageo, the London headquarter’s decision can confirm the change in expectations for the Korean whiskey market.
As of April 18, 2022, when the government began to formalize the endemic with the complete lifting of social distancing, the hopeful clue remaining for the industry in the Korean market is that the change of drinking stage spread home from the past absolute restaurant-centered markets.
It’s unclear how long the changes in this new drinking pattern people have experienced during the pandemic will last because people are better at adapting to comfortable changes quickly than trying to embrace significant changes. However, for the whiskey brands that want to take advantage of these remaining opportunities, we’d like to share the following helpful clues for creating a relationship with these late millennials and Generation Z.
The first fully digital native generation that can share the joy of drinking even if they are apart. The drinking log phenomenon unique to these generations, which is just 20 years old and shares the first moment of drinking live on Instagram or Youtube, is often found. Among the people we met, there were cases where they created a new Instagram account that they do not usually use and invited their acquaintances only to use it when they have an online drinking party.
The generation that values the one best experience and spares no investment. Pursuing an active premium dining experience while standing in long lines at Omakase restaurants with expectations of being served by the chef can easily be identified with the relevant hashtags. The characteristic of this generation, who choose to experience more expensive accommodations rather than traveling as often as they used to do, shows a link between the high price of whiskey and the relative value proposition.
The generation that prefers loose relationships, playing with a few friends. Investing in subscription services to online classes or gatherings that focus on their own tastes rather than investing in deep, personal new relationships is also the key to this generation’s consumption change during the pandemic. This could serve as an opportunity to expand the potential of whiskey as a discovery of a new taste expected by women in their 30s who visited bars before the pandemic.
However, to take advantage of the above opportunities, a more practical alternative would be to find a starting point by reconsidering the industry’s whiskey-drinking practices. Each industry is often maintained based on orthodoxy and shared assumptions taken for granted.
When we worked on the project to understand the cause of the long-term decline in sales of herbal medicines in the oriental medicine community, it was assumed the negative view that the common cause of the decline in sales, which was pointed out by oriental doctors, who are individual businesses, was that is unscientific from the outside. But as the investigation progressed, the leading cause we identified was, in many cases, the anxiety about the oriental medicine prescriptions that oriental doctors themselves had.
Oriental doctors learn the theory of oriental medicine at the university for six years, but there is no official residency system that allows them to directly check the medical knowledge they have acquired in the clinic like doctors after graduation. Therefore, after graduation, most oriental doctors take out loans and start a private hospital in the neighborhood to prescribe chronic joint pain to an older adult in his 80s who sits in front of his eyes. For reference, the primary textbook in which they acquire knowledge of oriental medicine for six years is Donguibogam, written 600 years ago.
This undisclosed truth in the industry has been one of the critical reasons for the decline in herbal medicine sales, which the Korean Medicine Society has not been able to solve even with forty thousand dollars per month of Korean medicine promotion costs for at least ten years. Since then, the internal change began only when the difference in monthly sales was confirmed in the over one hundred fifty thousand dollars between oriental doctors who overcame the anxiety about prescribing this herbal medicine through individual efforts and those who did not.
If there is a business leader who thinks that the marketing activities of the current whiskey industry featuring celebrities in their 30s will not be enough to lead to the same success as before, which had generated three hundred and sixty million dollars in annual sales, the case of the Korean herbal medicine industry is worth noting.
Will your brand expand the generation of whiskey consumption, relying on existing hospitality and entertainment culture? Will your brand find a new opportunity only for whiskey in the realm of popular drinking habits?
The wine industry is already creating its own territory in the drinking customs centered on soju and beer, which have led to popular drinking choices. Compared to 2020, wine imports in 2021 account for 70% of the total foreign liquor imports, showing nearly three times the expansion of the whiskey market. The No.1 liquor experienced by Generation Z in the home liquor trend is wine, which is also confirmed by the results of an online survey conducted by Carrot.
Since whiskey has unique aspects of its experience linked to price, alcohol content, and rarity, there are opportunities to reveal its value in changed drinking customs.
The question is whether the industry can recognize which internal outdated orthodoxy and assumptions and make decisions to face them.
Ryan Son is the partner at Reason of creativity.
