Fake Scandal

A display of Kooksoondang Saeng Makgeolli at a Costco overseas.
A display of Kooksoondang Saeng Makgeolli at a Costco overseas.

 

Bae Jong-ho, CEO of Kooksoondang greeted the audience at the Baekseju rollout event.
Bae Jong-ho, CEO of Kooksoondang greeted the audience at the Baekseju rollout event.

 

Kooksoondang, a Korean brewery surrounded by controversy over fake Cynanchum wilfordii, or “baeksuo,” recorded the biggest losses last year.According to the Financial Supervisory Service (FSS) in March, the company posted 8.2 billion won (US$6.88 million) of consolidated operating losses last year, turning into a deficit compared to the previous year.   

This was because the Ministry of Food and Drug Safety ordered the company to stop selling products made of Cynanchum wilfordii in May last year due to controversy over fake cynanchum wilfordii, its flagship Bekseju saw the sales plunge and there were no alternative products. Accordingly, Kooksoondang showed a loss for the first time ever.

At that time, the company discarded all the products and recalled the entire batch of three products made of Cynanchum wilfordii – Bekseju, Bekseju Classic and Kangjang (vigorousness) Bekseju.

Until now, Kooksoondang has been launching various new products in order to lower the dependence on Bekseju but failed to obtain good results.

Makgeolli, one of its two flagships along with traditional liquor, is also in a serious downturn. The makgeolli market has been continuously decreasing from 2011 to some 200 billion won (US$167.86 million). The biggest problem is that Kooksoondang has been paying a dividend every year, though its performance has steadily worsened.

The company decided to pay an annual cash dividend of 50 won per common share, similar levels of last year, even though it recorded net operating losses this year. The total dividends amount to 880 million won (US$738,565).

Such a dividend policy is closely related with the company’s composition of shareholders. About 43.7 percent of the entire shares in Kooksoondang is owned by Chairman Bae Joong-ho’s family members, including Chairman Bae with a 36.6 percent stake and Senior Vice President Bae Sang-min, the first son of Chairman Bae, with a 5.7 percent stake. In other words, 43.7 percent of the total dividends this year worth 370 million won (US$310,533) will go to the Bae.

 

 

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