Korea: Will Wine Prices Come Down to More Affordable Level?

South Korean wine lovers have been growing tired of paying the premium for mediocre Bordeaux and Chilean cheapies, especially in this kind of slumping economy.

So it remains to be seen whether the intensifying price competition between the country's three biggest department store chains would offer consumers a broader range of bottles that deliver the bang for the buck.

Korea has been earning its stripes as a wine nation in recent years, but consumption is now taking a hit amid the economic downturn as credit-crunched enthusiasts reel.

This has retailers competing to lower the prices on their bottles on the shelves by eliminating wholesale middlemen through direct imports and other measures to simplify the distribution structure.

Making the first move was Shinsegae Department Store, which established its own import arm, Shinsegae L&B, last December, for direct wine imports.

The department store began selling wines imported through Shinsegae L&B earlier this month, which includes 260 different wines from 51 wineries in France, Germany, Australia, the United States, South Africa and other wine-producing nations.

Now the Lotte Department Store, Shinsegae's bitter industry rival, is calling ``checkmate.'' Lotte said it will introduce a ``green price'' system at 25 of its outlets starting next month, which would cut the current prices of some premium bottles by as much as 60 percent. Critics have been blasting department stores for setting the wine prices excessively high, only to offer them at lower prices through frequent discount events.

Under the new pricing system, Lotte and importers will agree on a fixed price for each bottle, which the company said will help eliminate consumers' ``distrust'' over prices.

Lotte said the new pricing policy will be effective for 74 wines, most of them expensive trophy bottles that include 26 Bordeaux first growths, including Chateau Lafite Rothschild and Chateau Margaux, and other pricey wines such as Chateau Petrus, Opus One, Almaviva and Chateau Chasse-Spleen.

Chateau Talbot 2006, a popular bottle for serious wine lovers, will be available at Lotte for 105,000 won, compared to the 200,000-won-plus price tags they currently have at stores.

A bottle of Chateau Camensac 2006 will be sold at 63,000 won, compared to the previous price of 140,000 won, Lotte officials said.

Aside from the new pricing system, Lotte also plans to increase its volume of direct imports through its affiliate, Lotte Ashai. Lotte officials traveled to wineries in France and Italy and plan to visit Chilean wineries this year to source the wines for direct imports.

``We want to develop a reputation as a destination where wine lovers will find bottles that are reasonably priced from different ranges,'' a Lotte official said.

Hyundai Department Store is getting into the price-cutting act as well, introducing a new lineup of wines dubbed as ``H-Style,'' consisting of 25 wines, including nine French first growths and other premium products from Italy, Spain, Australia and Argentina. The wines will be sold 20 to 50 percent cheaper than they were previously, Hyundai officials said.

Hyundai also plans to introduce a ``H-only'' lineup, consisting of 40 wines that haven't been imported before.

Local wine lovers have long complained about the heavy taxes imposed on imported bottles, which are tagged with a 15 percent duty and a further 30-percent liquor tax and a 10-percent education surtax, all before importers and retailers look for their margins. As a result, the prices of bottles often bloat by threefold or more when they reach consumers.

The department stores are claiming that their efforts to make wine more affordable will eliminate much of the problems.

However, skeptics argue that the efforts would have a minimal impact in sustaining the growth of the country's wine population.

Most of the wines included in the new pricing policies are high-end bottles that fetch above the 100,000-won mark, revealing that the department stores are targeting serious wine buffs and trophy hunters rather than casual drinkers.

The price war is expected to drive out small and mid-sized importers.

Only a dozen or more wine importers have the size to survive direct competition with major retailers, industry watchers say.

``The department stores will not be able to source all the wines themselves, so there will be room for importers, but only the big ones,'' said an official from a mid-sized wine importer.

``The department stores will focus predominately on premium wines, so the new pricing policies will have limited influence in converting bargain-basement drinkers to trade up.''