South Korea wine mart ready to toast U.S. trade deal

By Jon Herskovitz

SEOUL (Reuters) - South Korea's free trade pact with the United States signed at the weekend should nicely pair South Korea's steadily growing wine market with the export ambitions of U.S. wine makers.

But it may take several years of ageing before it leads to a drop in exorbitant wine prices in South Korea.

"Korea is due for a big boom in California wine," said Dan Schulte, a senior executive with major importer Pieroth Korea.

When the free trade deal comes into effect with the United States, it will lead to a lot more wine on the market, but the price drop from the tax cuts may not be quickly passed on to consumers, Schulte and other wine industry sources said.

The few South Koreans who are regular wine drinkers are used to paying a premium for the beverage and it will take a much larger number of consumers, who are better informed about global prices, before a bottle becomes cheaper, they said.

A paper from the U.S. Embassy in Seoul shows retail wine prices in South Korea are about two to four times those in the United States due to high mark-ups, taxes, distribution costs and government regulations.

"You can't have a boom when only about 5 percent of the population is drinking wine. It requires a cultural shift from drinking to get drunk with soju to actually sitting down and enjoying the wine," Schulte said.

Soju, a clear Korean liquor similar to vodka, and beer are the main alcoholic beverage of choice in the country.

FROM NICHE TO MAINSTREAM

South Korean media have said the trade deal with the United States, and one in the works with the European Union, could lead to a sea change in the world's 12th largest economy, turning wine from a niche drinking choice to a mainstream beverage.

A trade deal with Chile in 2004 brought about lower prices, more varieties of wine from the South American country coming into South Korea and led to about a five-fold increase in sales.

South Koreans are drinking more wine with consumption nearly doubling from 2002 to 2006, where it totaled 32,323 kilolitres, according to the National Tax Service. France, Chile and the United States lead the import charge at present.

But that is a drop in the bucket compared with soju at nearly 1 million kilolitres and beer at 1.9 million kilolitres.

MarketResearch.com forecast the volume of wine sold in South Korea will grow by 45.2 percent to 2011 and the value growth will be 188.3 percent by the same date. But that still puts yearly sales figures in the tens of millions of dollars.

"A lot of distributors tried to prepare for the FTA by reaching deals to import U.S. wines before they became too popular," said Nam Jeemi, who used to work for a major distributor but now runs a Seoul wine bar called La Terre 21.