[Market Eye] Shinsegae-Lotte rivalry heads to winemaking

The old rivalry between Shinsegae and Lotte looks set to head to winemaking. The nation’s top two retail giants who also are the major importers of cheaper casual wines are gearing up to produce high-priced premium wines on their own.

Shinsegae Property, the group’s property development arm, acquired US winery Shafer Vineyards for 299.6 billion won ($250.3 million) last month. The 80-hectare vineyard is known for luxury wines like Hillside Select, whose price tag is around 860,000 won per bottle here.

“With the latest acquisition, we aim to further expand our wine business and ultimately to make our own premium wines,” said an official from Shinsegae Property. “If successful, although it’s too early to tell, we would become the first local retailer to do so.”

Shinsegae’s crosstown rival Lotte is also in search of a winery to make forays into winemaking.

“We are also looking at options to acquire a winery in France or other European countries famous for winemaking,” a Lotte official said. “We already have plans at a certain level to start making wines by ourselves.”

Their renewed wine push comes as the two retailers have seen stellar growth in their wine businesses recently. Amid the protracted pandemic, more people enjoy lighter liquor at house parties, with wine increasingly being a favorite choice.

Last year, Shinsegae L&B, the liquor and beverage arm of Shinsegae, saw wine sales surge 58.2 percent to 230 billion won from 2020, while Lotte’s beverage unit Lotte Chilsung Beverage logged 80.5 billion won in wine sales, up 34.4 percent from a year ago.

Currently, import wines make up more than 90 percent of wine consumption here. Both firms have increased wine sales by importing low-priced casual wines targeting young drinkers with tight budgets.

Shinsegae L&B started importing 1 million bottles of Dos Copas from a Spanish winery since 2019, selling the wine at 4,900 won a bottle. Thanks to the unprecedented bulk purchases, 4.2 million bottles of Dos Copas have been sold as of last year, becoming one of the top sellers.

With plans to make their own wines, retailers appear to take a two-track strategy. That is, targeting the high-end market with their own premium wines, while relying on cheaper imports to appeal to a soaring mass market demand.

Experts say that it would take some time for the retailers to turn a profit in their own winemaking, citing the huge operational costs in the initial phases as well as supply constraints of raw materials like quality grapes.

“It’s almost five times more expensive to make premium wines than regular wines,” said Choi Sung-ryeol, a winemaking team leader at the state-run Wine Research Lab in North Chungcheong Province. For instance, in order to make a bottle of luxury wine priced between 800,000 and 1 million won, the production costs at least five times more than for regular ones, in addition to maintenance costs of wine maturity as well as hiring a sophisticated workforce to create delicate tastes.

“But in the long run, I think making their own wines would be a lucrative business with higher profits, considering a surge in local demand for wine overall,” Choi added.

Last year, global wine research firm Wine Intelligence named South Korea the second most attractive wine market next to the US, saying its wine sales have grown more than 11 percent between 2016 and 2020.

According to recent customs data, the wine frenzy has been fueled by the coronavirus pandemic. The import volume soared 70 percent from $330.01 million in 2020 to $559.81 million in 2021.

By Byun Hye-jin (hyejin2@heraldcorp.com)