A wave of voluntary retirement is sweeping through South Korea's alcoholic beverage industry. Following HiteJinro's first voluntary retirement program in four years, OB Beer and Lotte Chilsung Beverage have also embarked on workforce optimization in succession. Given that the average annual salary of employees at major liquor companies is around 100 million won ($70,000+), long-term employees are expected to receive hundreds of millions of won in severance pay and consolation money combined. As domestic liquor shipment volumes have fallen below 3 million ㎘ for the first time in 27 years and the consumer slump prolongs, efforts to reduce fixed cost burdens are spreading.

370 Million Won in Consolation Money for 20 Years of Service

According to the liquor industry on the 15th, HiteJinro has been accepting applications for voluntary retirement from employees with 15 or more years of service starting from the 11th until the 25th. This is the first time in four years since 2022. The company is offering severance consolation money equivalent to 20 months of wages for employees with 15 to under 20 years of service, and 36 months of wages for those with 20 or more years of service. Statutory severance pay is separate.

The scale of the consolation money is substantial. According to the Financial Supervisory Service's Electronic Disclosure System, the average annual salary of HiteJinro employees last year was 124.24 million won. Simply dividing this by 12 months results in a pre-tax monthly average salary of approximately 10.35 million won. Assuming this amount as the baseline for consolation money calculation, employees with 15 to under 20 years of service would receive about 207 million won, and those with 20 or more years of service would receive about 373 million won.

Taking general severance pay into account makes the total amount even larger. Assuming an employee with an average salary level has worked for 20 years and the monthly average wage applied to severance calculation is the same, general severance pay is about 207 million won. Combined with the voluntary retirement consolation money, the total reaches approximately 580 million won. However, actual severance pay is calculated based on average wages right before retirement, and separate base wages may apply to voluntary retirement consolation money, resulting in individual variations in payout amounts.

HiteJinro’s average length of service stood at 18.3 years as of last year. A significant portion of its 2,935 employees consists of long-term workers. The company plans to continue supporting certain welfare benefits even after the voluntary retirement.

However, this year's voluntary retirement conditions are scaled back compared to four years ago. In 2022, the company provided consolation money equivalent to 34 months of wages for employees with 15 to under 20 years of service, and 40 months for those with 20 or more years. This year, those figures dropped by 14 months and 4 months, respectively. This is interpreted as a reflection of the company's cost-management stance to lower labor cost burdens.

OB Beer also implemented voluntary retirement last month. It accepted applications from employees with 5 or more years of service, offering consolation money ranging from 7 to 30 months' worth of wages depending on the length of service. Employees with 5 years receive 7 months, those with 10 years receive 15 months, and those with 17 or more years receive a maximum of 30 months. If the remaining period until retirement is shorter than 30 months, the company pays out for the remaining work period.

For example, if an employee with an annual salary of 100 million won has worked for 17 years or more, the consolation money is about 250 million won. Adding general severance pay increases the payout. Note that this is an estimate using a hypothetical 100 million won salary rather than OB Beer's actual average salary.

Lotte Chilsung Beverage has embarked on voluntary retirement for two consecutive years, following last year. The targets are employees born on or before December 31, 1981, with a tenure of 10 years or more. The company offers 20 months of base salary for employees with 10 to under 15 years of service, and 24 months for those with 15 years or more. It also provides separate support of 10 million won for re-employment assistance and up to 10 million won in tuition per college-aged child.

Lotte Chilsung Beverage’s average employee salary last year was 73.62 million won. Converting this to a monthly average, the consolation money for employees with 15 or more years of service is about 147 million won. Adding the re-employment support fund brings it to about 157 million won, excluding general severance pay and child tuition support. Lotte Chilsung Beverage’s voluntary retirement targets employees engaged not only in the liquor business but also in the beverage business and others.

Liquor Shipments Hit 27-Year Low… Alcohol Industry Streamlines Operations

The background behind the liquor industry’s sequential voluntary retirement initiatives lies in the decline of domestic alcohol consumption. According to the National Tax Statistics Portal of the National Tax Service, last year's domestic liquor shipment volume was recorded at 2,988,000 ㎘. Falling below the 3 million ㎘ mark is happening for the first time in 27 years since 1998, the era of the foreign exchange crisis (IMF). Compared to 2015 (3,804,000 ㎘), shipments have decreased by 21.5% over a decade.

The downward trend in primary liquor categories, beer and soju, is prominent. Last year's beer shipments stood at 1,519,000 ㎘, down 7.2% from the previous year. This marks a three-year consecutive decline from 1,698,000 ㎘ in 2022. Diluted soju shipments also dropped from 862,000 ㎘ in 2022 to 793,000 ㎘ last year, falling below the 800,000 ㎘ threshold.

A major influence is the shift in drinking culture itself. Moving away from past mass-consumption patterns of soju and beer at corporate dinners and group drinking gatherings, consumption habits valuing health and personal preference are spreading. Among the younger generation, a trend of reducing drinking or choosing low-alcohol and non-alcoholic products is also emerging.

As sales volume decreases, manufacturers' relative fixed-cost burdens increase. The liquor manufacturing industry requires significant expenses to maintain production facilities, distribution networks, and sales organizations. Even if sales volume declines, labor costs and facility maintenance fees necessary to operate plants and sales networks do not decrease immediately.

HiteJinro's consolidated revenue for the first half of this year was 1.2094 trillion won, down 4.0% from the same period last year. Operating profit also fell by 5.0% to 120.9 billion won. Amid the slowing growth of the domestic liquor market, the need for fixed-cost efficiency has grown.

Lotte Chilsung Beverage recorded a consolidated third-quarter revenue of 1.0501 trillion won, down 2.7% year-on-year, with operating profit plunging 37.9% to 57 billion won. However, looking strictly at the liquor division, revenue increased by 2.5% and operating profit by 24.1%. Rather than deterioration in the liquor business itself, the voluntary retirement can be seen as part of company-wide profitability management encompassing beverage and overseas businesses.

OB Beer's revenue last year also rose 2.0% year-on-year to 1.7755 trillion won, but operating profit decreased 5.4% to 346.5 billion won. However, OB Beer maintains that the voluntary retirement is unrelated to forced workforce cuts driven by financial distress, but rather a system for a virtuous cycle of organization and personnel.

Domestic liquor companies are finding breakthroughs by expanding into overseas markets and developing new products. HiteJinro is expanding soju exports, while OB Beer is broadening its distribution network through new products. Lotte Chilsung Beverage is fostering Ready-to-Drink (RTD) products like fruit-flavored carbonated drinks.

However, it is not easy for overseas markets and new businesses to offset the decline in domestic sales of mainstay products in the short term. How to efficiently operate existing production and sales organizations built on the premise of sales growth has emerged as a major challenge. Attention is focused on whether the liquor industry’s voluntary retirement will lead to long-term cost structure reorganization beyond temporary workforce adjustments.

[ⓒ Global Economic Times. 무단전재-재배포 금지]