| SEOUL/HONG KONG
SEOUL/HONG KONG Jan 21 A story Oriental Brewery
boss Chang In-soo often tells about his days as a soju salesman
is how he and two clients once worked through 29 bottles of the
traditional Korean rice liquor at a single sitting. He feels
bad, he says, they didn't manage 30.
His stamina in capturing 60 percent of the local beer market
has been just as eye-catching, helping to explain why
Anheuser-Busch InBev SA has agreed to buy back the
brewer for nearly three times the price it achieved five years
ago when it sold it to private equity investors.
"'The war is won on the ground', that is what Chang knows,
he motivates the sales guys to go out, pound the pavement," said
a source who knows him.
One anecdote colleagues tell of Chang's motivational style
recalls him turning up with his wife at 5 a.m. in the depths of
the Korean winter to give out bowls of hot soup to dockworkers
and drivers toiling in the freezing loading bays.
Oriental Brewery (OB) has certainly performed well in the
five years under KKR & Co and Korea specialist Affinity
Equity Partners. Core profit (EBITDA) increased 25 percent last
year to $500 million - 2.3 times greater than when they bought
it from InBev, which had retained an option to repurchase.
The $5.8 billion that AB InBev is paying to buy it back
makes it the record inbound M&A deal into South Korea, ahead of
Standard Chartered's $3.3 billion agreement to buy
Korea First Bank in 2005, Thomson Reuters data shows.
But if the returns made were stellar - the deal announced on
Monday was Asia's biggest ever private equity sale via M&A - the
risk they took in buying the firm, in the depths of the
financial crisis, were great.
The private equity partners set about reducing costs and
boosting market share with new products and an aggressive sales
drive. Celebrity endorsements from the likes of rapper Psy have
been used to help target a younger audience for its Cass brand.
"OB was an old man's beer, a beer you would say, 'I don't
drink that, my granddad drinks that'. So they gave it a new
image, they listened to what people wanted," said the source.
"They created Cass Lite to appeal to women, created OB
Golden Lager with more flavour because people wanted more
flavour in their beer. And the sales guys took it out to the
distributors and the bars and clubs."
The brewer's debt was refinanced with cheaper loans from
An early move by the new private equity owners was to poach
Chang, a 30-year industry veteran with little English and no
college education, from then-market leader HiteJinro Holdings Co
Ltd, as sales chief in January 2010.
He overhauled the sales team and set about targeting the
south of the country, HiteJinro's stronghold, raising OB's share
of that market from barely double digits to around 40 percent,
the source said.
Chang, who was promoted to CEO in June 2012, has told
colleagues he drove more than 70,000 km (45,000 miles) in his
first year at the company, an OB spokesman said, having meals
and drinks with wholesalers and regional employees.
On the road he discovered that OB was damaging its beer's
freshness by pushing out inventory to boost monthly sales that
then sat in wholesalers warehouses for up to 6 months.
That soon changed, as the company overhauled its
distribution model as part of a wider restructuring.
Working alongside Chang has been KKR's operations team known
as Capstone - an internal consulting arm that boosted
expenditure on equipment and improved the beer fermenting
process, while overseeing cost reductions elsewhere including a
$3.7 million saving on water and $17.7 million from cutting
greenhouse gas emissions.
OB overtook HiteJinro as the country's top beer producer for
the first time in 15 years in 2012. Its market share has grown
to around 60 percent of the country's 4 trillion won ($3.8
billion) beer market, up from around 40 percent in 2009,
according to trade group Korea Alcohol & Liquor Industry
AB InBev, which said on Monday it would retain Chang as CEO,
clearly believes there remains more room for growth, despite a
fightback from HiteJinro and the entry into the saturated beer
market of retail giant Lotte Group.
"Chang understands how to sell to Koreans," said Choi
Soo-ok, the chairman of Korea General Liquor Wholesalers
Association, which represents 1,200 wholesalers throughout South
Korea. "During the last time InBev owned OB, it was all
statistics and bottom line. But Chang forges human relationships
to move bottles."