Shikye may help keep South Korea's rice farmers in businessVILAC Company, a 34-year-old dairy firm in South Korea, abandoned door-to-door sales in 1990 and started building a retail distribution network. After two years, the company was still making little headway. The problem was that apart from milk and tanpat-juk (an instant porridge), Vilac had little to offer retailers.
In 1992, Vilac launched a search for new products. It set four conditions: It wanted a traditional Korean food; it wanted a line in which it could be a market leader; it wanted a product with a long life cycle; and it had to be something made from materials that are readily available.
After a three-month search, the company's 15-man marketing team decided on shikye, a traditional drink made from rice, malt extract, sugar and ginger that is served to guests and during family gatherings.
Vilac liked shikye because only a few small companies made it, so there was no competition from big players. Because it's made from rice, it also holds a certain patriotic appeal in that it helps support the country's farmers as South Korea prepares to open its local market to imported rice. As a traditional drink, shikye is also not likely to be a passing fad. Vilac also figured consumers would like ready-made shikye, because making it is time-consuming.
'At first, we searched for a food product,' says Seo Young-keun, director of Vilac. But the marketing team decided the food market was overcrowded. '[With shikye], we found a huge untapped niche.'
South Korea's soft drinks market, worth more than W2 trillion (US$2.6 billion) a year, is dominated by cola drinks, soda and fruit juice. When Vilac entered the market, four small firms offered ready-made shikye, but sales were only about W35 million a month. Within its first year, Vilac sold W2 billion worth of shikye. In 1995, the company estimates that sales hit W90 billion.
'The key to success was a faithful reproduction of home-made shikye,' says Seo.
Creating a winning formula was tricky. Each region has its own variety of shikye, using different proportions of rice, malt, ginger and water. Vilac decided on a lighter version it thought would appeal to people in their thirties and forties across the country.
'Our initial target was those in their thirties and forties who prefer the traditional drink,' says Seo. 'But [we found that] people in their twenties also drink it.'
Vilac's success has drawn other companies into the market. Forty companies now sell shikye drinks, and at the end of 1994, South Korea's big three drinks makers, Lotte, Haitai and Doosan, launched products.
With so much shikye competing for the attention of consumers and the space on supermarket shelves, prices have been coming down. Vilac has cut the wholesale price of its canned shikye from W420 to W350. Others offer it for as little as W280.
Despite the price pressure, Vilac insists volume has not suffered. But Seo admits: 'It is a blow. Not because we sell less, but because it's slimming our margin.'
Some pessimists say the shikye craze is a passing fad that will quickly fizzle out. But Vilac remains optimistic. The company plans to spend W8 billion on a new shikye plant that will have the capacity to make 1.2 million cases of shikye a month.
Eventually, the company hopes to export this traditional Korean product. 'Overseas markets are our ultimate target,' says Seo. 'Rather than fighting over a tiny domestic market, we'll be more active in tapping into overseas markets.'
Vilac now exports US$3 million worth of shikye cans to 17 countries each year and hopes that by adapting the flavour to local tastes it can increase this in coming years. The company recently took 5,000 cans of shikye to Taiwan and held a rally to introduce the product. 'We'll [assess] their response and will localise our recipe,' says Seo.