Why are Energy Drinks Failing in South Korea? - Research in Focus
South Korea still offers opportunities to energy drinks companies
South Korean consumers are not engaging with energy drinks at the same level as the country's neighbours in South-East Asia.
Unlike Thailand and Vietnam, for example, blue-collar workers in South Korea do not have a tradition of consuming energy drinks to keep them awake while working long hours. Instead, they have relied on coffee to help them stay alert.
Energy drinks did not become widely available in South Korea until 2010. By 2012, reports of teenage deaths connected to energy drinks consumption had made the news around the world. Reacting to strong demand for energy drinks from high school and college students, South Korean legislators introduced legislation for the segment.
The restrictions swiftly reduced demand for energy drinks in 2013 and 2014 and are poised to result in further losses in the coming years. As more countries are expected to follow South Korea in regulating the energy drinks industry, the country offers examples of how energy drinks companies can respond.
South Koreans work longer hours than workers in other countries. In 2013, South Koreans worked an average of 2,163 hours, compared to 1,734 hours in Japan and 1,788 hours in the US, according to the Organization for Economic Cooperation & Development. The country’s workers have been able to work long hours by relying on coffee. According to a study this year by the Ministry of Agriculture, Food & Rural Affairs and the Korea Agro-Fisheries Trade Corp, South Koreans drink coffee an average of 12.2 times per week.
In the past decade, cafés have become very common, with enjoying coffee at a café now a common cultural activity, especially among young adults. The arrival of US-based Starbucks helped popularise specialist coffee shops among young Koreans in the country's capital. Seoul had the distinction of having more Starbucks locations (284) than any other city, according to website Quartz last year. The specialist coffee craze in the country has led to carrying cups from Starbucks and other outlets being considered status symbols among young professionals.
The relatively late arrival of energy drinks certainly played a part in the segment's popularity today. Energy drinks boasted explosive total volume growth of 665% from introduction in 2010 to 2012, when consumption totalled around 19.9m litres. Students and young office workers sought out energy drinks in order to help them stay awake for studying or overtime work. Students were also mixing energy drinks with sports drinks and powdered vitamin C to create 'boong-boong drinks'.
In 2013, the South Korean Government mandated that drinks containing more than 150ppm of caffeine must carry warning signs on their labels. The Ministry of Food & Drug Safety also announced a ban both on the sale of high-caffeine drinks within school zones and the airing of television commercials for these products between 1700 and 1900.
Since the legislation came into effect so quickly after energy drinks were introduced in South Korea, consumers did not have time to develop a loyalty to energy drinks. Also, media coverage of the potential harm high-caffeine intake could do led to reduced demand.
Given the regulations and consumers’ safety concerns, demand for energy drinks is expected to decline further in the forecast period. In 2019, total volume sales of energy drinks are projected to decline by 33% to 10m litres. Energy drinks companies will have a difficult time surviving in this environment. However, there are some ways that energy drinks makers can improve their prospects, such as introducing lower-caffeine energy drinks, adding more natural ingredients, holding promotions at sporting events or, where applicable, emphasising the products’ zero-calorie content.
In late-2012, leading player Lotte Chilsung Beverage introduced the new variety of Hot 6 Light with half the caffeine. The company also upgraded the content of guarana extract and taurine in Hot 6 in 2011, followed by the launch of Hot 6 Fruits Energy, which contains 20% fruit juice, in early-2013. Lotte Chilsung emphasises the upgraded natural ingredients content in order to ease consumers’ concerns about the negative effects of energy drinks.
In summer 2014, CJ launched a new energy drinks brand, Over & Over, with only 30mg of caffeine and the image of Psy, a famous Korean singer, on its packaging. Over & Over uses caffeine that is extracted from green coffee beans, and has additional natural ingredients such as extract of turmeric and rice embryo.
Meanwhile, the country's consumers are very interested in beverages that are positioned as weight-management products. There could be an opportunity here, if manufacturers develop functional ingredients to burn fat or limit fat absorption. Alternatively, companies such as Red Bull and Monster Beverage Corp, which produce a variety of zero-calorie energy drinks, could emphasise the zero-calorie content of these products.
Observing how energy drinks producers in South Korea react to a negative environment offers lessons that may be applicable to other countries. Due to health concerns voiced by health organisations and politicians around the world, more restrictions on energy drinks sales and advertising are expected in the next few years.
South Korean energy drinks makers are trying to improve the health profile of energy drinks by reducing caffeine and adding more natural ingredients, such as fruit juice, green coffee beans or herbs. Since drinking coffee is generally viewed as safe, using green coffee beans as a source of caffeine is likely to be viewed as more natural and safer. Finally, by introducing fruit juice flavours, zero-/low-calorie energy drinks makers may be able to attract new consumers, such as 20- to 35-year-old women.
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