Diageo Goes Gangnam With Johnnie Walker for Korean Revival

Diageo Plc, the world’s biggest distiller, is trusting Gangnam to do the same for whisky as the song named after it did for dance moves.

Seoul’s luxury retail district, best known for the Gangnam Style music video that became a global phenomenon, is the location for today’s opening by Diageo of a Johnnie Walker House as the liquor maker goes after high-net worth consumers seeking a bespoke bottle of its biggest whisky brand to take home.

The distiller is aiming to spice up a whisky market that’s plunged into decline as drinkers choose trendier watering holes or stay at home. Gangnam’s Johnnie Walker House will become the third such outlet after the Shanghai and Beijing branches in China, and forms part of Diageo’s attempts to tap growing demand for luxury products across Asia as sales stagnate in Europe.

“Korea is a very important market for Diageo,” Gilbert Ghostine, president of the company’s Asia-Pacific unit, said in an interview yesterday. The country “is the biggest Scotch whisky market in Asia-Pacific and also it is the biggest super-deluxe whisky market in the world. We are very excited about the potential of Johnnie Walker House in Korea.”

The six-floor building in Seoul has a distillery room, blending suite, VIP lounge and a rooftop bar where visitors get exclusive access to rare whiskies including Johnnie Walker 1949, a tribute to the year when the brand was first imported to Korea. Super-deluxe whiskies -- richly priced, highly profitable bottlings -- will be available, such as a limited edition of Johnnie Walker 1949 for 2.35 million won ($2,186).

Weakening Sales

The opening comes as overall whisky demand in South Korea is weakening. Diageo’s net sales in the country fell 17 percent on an organic basis in the year ended June 30 as sales in the so-called traditional on-trade declined. Diageo gets about 80 percent of sales from such bars, Ghostine said in May.

Competitor Pernod Ricard SA, which generates about 60 percent of sales from that route, sees whisky drinking in more traditional outlets as being in structural decline, Chief Executive Officer Pierre Pringuet said in August.

“The drinking cultures in Korea are changing, but there isn’t enough growth in the modern on-trade yet to offset whisky’s decline in traditional bars,” said Trevor Stirling, an analyst at Stanford C. Bernstein in London. It could be a “glacial process” to return whisky to its previous popularity.

Modern Drinking

South Koreans are gravitating away from “traditional” hostess bars that are populated by businessmen and dominated by whisky brands including Diageo’s Windsor and Pernod’s Imperial. Instead, a new generation of younger Koreans are either choosing more modern bars or drinking at home.

Diageo was the largest international liquor company in the Asian country last year, according to researcher Euromonitor. Whiskies are the most popular spirits by volume in South Korea, where sales of the U.K. company’s other brands such as Baileys cream liquor, Guinness stout and Smirnoff vodka have increased.

Diageo is seeking to grow organic sales 6 percent globally in the year ended June 2014, Ghostine said.

The company is looking to open 10 to 15 Johnnie Walker Houses in big cities in Europe and Latin America after sales in its properties in China doubled, the executive said. It opened the Shanghai venue in 2011 and a Beijing one this year.

Diageo shares fell 0.3 percent to 1,982 pence at 8:25 a.m. in London trading. They’ve gained 11 percent this year.

To counter the decline in the South Korean market, Diageo is seeking to boost the proportion of sales to customers seeking to drink in more modern establishments -- say karaoke venues -- or at home, Ghostine said earlier this year. The company is also seeking to increase profitability by selling more expensive brands. Sales of super-deluxe whiskies under the Johnnie Walker label in South Korea rose 20 percent last year and Diageo expects a similar growth rate in future, he said.

“The whisky market is declining, but through the Johnnie Walker House, we don’t want people to buy more, we want them to buy better,” Ghostine said.

Before it's here, it's on the Bloomberg Terminal.