How long will it take for the liquor industry to adjust the inflection point of the post-year cycle?

Editor's note:

After a decade, China's wine industry has once again ushered in a turning point in the cycle.

The liquor industry will continue to adjust its signals in 2023: price inversion, high inventory, performance differentiation, stock price halving, and frequent exhibition cooling, but industry leaders and strong regional brands still buck the trend and show strong resilience. The beer industry will continue to promote the process of high-end in 2023, but can the trend of high-end driving the beer industry continue? At the end of the year and the beginning of the year, the 21st Century Business Herald launched a series of articles, focusing on the most representative wine companies this year and dismantling the year of changes in the wine industry.

Let's turn back the clock to a decade ago. In December 2013, the then head of Wuliangye bowed to thousands of dealers at the annual dealer meeting and apologized.

That year, the liquor industry for eight consecutive years of "volume and price rise" came to an abrupt end, and the major famous liquors were not spared, the market price and stock price both fell, and even Moutai and Wuliangye also fell all the way, the market value evaporated by more than half, and the institutions collectively fled from the liquor sector.

However, Lin Yuan, Dan Bin, and Dong Baozhen, who were heavy on "Mao Wu", spoke out in support one after another, and also went to the winery to investigate, claiming that "now is a once-in-a-century opportunity". As it turned out, they were right. That year, the lowest share price of Kweichow Moutai was less than 90 yuan, and the lowest share price of Wuliangye was close to 10 yuan, and the stock price doubled in 2015, and the highest point in 2021 exceeded the 2400 yuan and 340 yuan mark respectively, even now it is more than 10 times and 20 times the stock price at that time.

Ten years later, in the face of a year-long downturn in liquor stocks, investors want to know: how long will this adjustment period last? With the experience of the last round of adjustment, will the liquor industry be able to survive this time?

Liquor is an optional consumer product, and its sales are highly dependent on distributors, so the adjustment comes later than that of many industries, and it shows significant post-cycle industry characteristics during the downturn - even in 2023, when the market cools down, the revenue of most liquor listed companies in the first three quarters is still positive, and the arrival of the inflection point is significantly later than that of most manufacturing and consumption industries.

Only this time, the situation is more differentiated: on the one hand, the performance of mid- and back-end listed liquor companies and mid-to-low-end brands has declined, and the number and amount of losses of liquor companies on the scale will hit a new high in 2023, on the other hand, the leading liquor companies in major provinces in the industry, aroma and liquor continue to maintain high growth, and the performance of high-end liquor is still relatively stable, and they have frequently attacked in new business expansion such as rejuvenation and internationalization, which has been strongly supported by institutions.

"Five or six years have gone through a ten-year cycle"

2023 was originally seen as a year of recovery in liquor consumption. At the beginning of 2023, institutions and industries are optimistic that the dynamic sales of the liquor industry will gradually recover, showing a trend of low before high.

But it turns out that the moment of the highest sentiment in liquor consumption is in the first half of 2023. At the beginning of the off-season in the second quarter of 2023, the sales of liquor fell short of expectations, and the channel inventory pressure faced by small and medium-sized soy sauce liquors gradually spread, evolving into the focus of attention of the entire liquor industry. During this period, the performance briefing, the general meeting of shareholders and the report of the brokerage, the social inventory situation was repeatedly asked.

Prohibition, executive changes, price adjustments, institutional "small essays", ...... Any news can be negative in 2023, and even Kweichow Moutai's stock price once plummeted. On the contrary, some micro-capitalization ST stocks have been sought after by investors.

Due to the obstruction of the A-share listing path, the foreign capital that has intensively increased the weight of liquor in the past few years has also been extraordinarily quiet, and only Chishuihe Liquor, which is associated with fertilizer giant Stanley, will make a high-profile appearance in 2023. Fortunately, Zhenjiu Li Du took the lead in listing in Hong Kong, opening up a new path for all unlisted wine companies, and since then, many wine companies such as Famous Family have expressed or passed on their willingness to go public in Hong Kong.

Some industry data can indeed support investors' concerns.

From January to November 2023, the output of liquor by enterprises above designated size in the country will be 3.958 million kiloliters, a year-on-year decrease of 6%, and the total output of liquor is expected to decline slightly throughout the year. This will be the seventh consecutive year of declining production in the liquor industry.

The decline in production is not new, and the trouble is that the losses are accelerating and expanding. In the first half of 2023, there will be 983 liquor enterprises above designated size and 333 loss-making enterprises in the country, with a loss of 33.8% and a loss of more than 2 billion yuan (expanded to more than 2.3 billion yuan by July), which is expected to hit a new high in recent years.

Zeng Congqin, the head of Wuliangye Group, said that the liquor industry is at the most complex and severe development point in history.

There is a basis for this statement. In 2022 and before, the number of loss-making liquor companies on the scale will not exceed 200, and the sum of the annual losses of each will be more than one billion yuan. Even during the deep adjustment period from 2013 to 2015, there were less than 120 loss-making enterprises in the whole industry, and the loss in 2015 was the highest, at 1.442 billion yuan.

Someone signaled in advance.

In February 2022, Dong Baozhen, who had written the book "The Great Game of Moutai", published a blog post in which he repeatedly emphasized that liquor has entered a downward inflection point in the big cycle. At that time, liquor stocks were generally still at a relatively high point, and in fact, until 2022, there were still some liquor stocks hitting record highs.

"In the past, the upward cycle of liquor lasted for about 10 years. But in the past five or six years, all the processes that have occurred in the entire cycle of liquor upswing have been completed. Dong Baozhen said.

In 2023, "negative growth of the industry as a whole, and mid-to-high-end structural growth" will be vividly interpreted, and it has become a consensus that the industry has entered a period of adjustment. In the first three quarters of 2023, the total revenue of the top five liquor listed companies exceeded 240 billion yuan, and the sum of profits exceeded 100 billion yuan, accounting for 80% of the revenue and 90% of the profit of the entire liquor sector.

This structural differentiation is not only reflected at the industry-wide level, but also within categories and regions: Shanxi Fenjiu, the leading light-flavored liquor, continues to maintain a high growth rate of more than 20%, driving light-flavored liquor to become a new outlet; Gujing Gongjiu and Yingjiagongjiu are taking more shares within Huijiu; and the gap between Jinhui Liquor and other Northwest liquors is gradually widening.

"The strong are always strong, and the weak are even weaker. The trend of market share concentration to strong brands is accelerating, and the withdrawal of small and medium-sized distilleries from the historical stage is also accelerating. Xiao Zhuqing, chairman of Wuhan Jingkui Technology, believes.

"Unlike the cliff-like adjustment caused by external influences such as the 'three public consumption' and the plasticizer incident in the previous round of adjustment period, the current round of adjustment of the liquor industry is much more rational and more in line with the internal law of the industry's own development. Yu Rui, founder of Yu Rui positioning agency, pointed out to the 21st Century Business Herald reporter.

The consumption center has been lowered and the inventory and production capacity adjustment have not yet ended

In 2023, leading liquor will not only earn most of the profits, but also make enough topics.

Moutai, Wuliangye, Yanghe, Gujing Gongjiu, Shede Liquor, and Langjiu have carried out overseas travel or overseas market expansion this year, leaving footprints in Japan, Southeast Asia, Europe, and North America.

It is easier for young consumers to get started. This year, Moutai's ice cream, coffee, chocolate, and cocktails appeared in turn, leading the heat gap. Wuliangye, Gujing Gongjiu, Shede Liquor, Zhenjiu, etc. have also followed up with ice cream and cocktail products, and Guojiao 1573 continues to carry out ice drink marketing, and the younger people have taken a step forward.

The progress of internationalization and rejuvenation needs to be observed on a yearly basis. To a certain extent, only these brands with relatively more stable positions have the spare capacity for long-term layout.

Having said that, the high-end liquor camp is not impregnable.

Although most listed companies have maintained at least double-digit growth, the wholesale price of most liquor in 2023 has been lowered compared with the past two years, and Moutai is no exception. Even for high-end liquor with a price of 1,000 yuan, there are brands that choose to shrink their front lines in 2023 because of poor sales.

The significant decline in demand for business and gifts is an important reason for the slowdown in liquor sales in 2023. Only the three-year backlog of banquet demand has recovered, becoming one of the few scenarios where there has been significant growth.

Greatly increasing the number of red envelopes by scanning codes has become a means of promoting sales of major liquors in the past year. On the one hand, it can improve the opening rate and turn channel inventory into real consumption, and on the other hand, it can also control goods channeling and low-price shipments to avoid affecting the price order.

Judging from industry research, except for a very small number of high-end famous liquors that are not affected, the center of liquor consumer prices has actually shown signs of declining.

According to the "2023 China Liquor Market Interim Research Report" released by the China Liquor Industry Association in the middle of the year, most market dealers have reported that the current best-selling liquor has begun to shift to the mid-end price segment, and nearly seventy percent believe that the low-end liquor in the middle and low-end price segment of 499 yuan and below is more popular at present.

Some famous wines have seized on this trend. Taiyuan Liquor launched by Moutai Group, Yuan Xi Liquor launched by Xi Liquor, and Yanghe Daqu (classic version) launched by Yanghe have sunk as famous liquors, forming a "dimensionality reduction blow" to small and medium-sized brands in the same price range.

"The price of liquor consumption is going down, the price band of 100 yuan is ushering in a development opportunity, and more companies are investing marketing resources in the high-end liquor track. Yu Rui pointed out.

Although the price reduction is in line with the current consumption trend, it has been proven many times in the past that it is likely to cause a decline in brand value and the status of the industry to be handed over, so most liquor will still choose to buck the trend and go premium. This divergence of individual strategies from the overall trend of the industry has led to a further extension of the destocking cycle.

Wang Chaocheng, chairman of Shengchu Group, pointed out by name at the Shenzhen Autumn Sugar Conference in November 2023 that "some local strong brands are still taking advantage of the strong position in the manufacturer relationship to suppress inventory, and the channel inventory in the mid-to-high-end market is still increasing, and the destocking cycle has not yet arrived." ”

Yu Rui believes that wine companies need to pay close attention to channel inventory and consumption trends, "It is unrealistic for manufacturers to blindly pursue their own high growth without paying attention to the affordability of distributors and channels."

Compared with offline, online liquor sales have a unique scenery, and even famous liquors that are extremely sensitive to price have put down their bodies and increased their e-commerce marketing. Liu Xiaowei, chairman of Goethe Yingxiang, believes that in the next three to five years, the proportion of online liquor sales will increase to 20%-30%, becoming the second largest channel after offline.

However, before dealing with the interests of distributors, online channels are more of a supplementary means for wine companies to maintain growth. Except for a few famous liquors such as Moutai and Wuliangye, more than seventy or eighty percent of the revenue of most liquor still comes from distributor channels. Developing online sales too quickly is easy to cause a backlash.

Xiao Zhuqing believes that the real test of the liquor industry will be in 2024, "if for a period of time, the fundamentals of consumers' pessimism about future income expectations and insufficient social purchasing power are not fundamentally improved, the real situation of some liquor companies will be exposed with the ebb of consumption."

Yu Rui judged that this round of adjustment will continue until 2025. "This round of adjustment actually started in 2022, but the epidemic is over, consumption is in a downturn, and the macro economy at home and abroad is still in the adjustment period, so this round of adjustment will not bottom out in 2024. ”

It is not only the wine companies that need to be adjusted, but also the overall production capacity of each production area. Song Shuyu, chairman of the China Liquor Industry Association, pointed out at the 2023 China International Famous Liquor Expo in December 2023 that "although the momentum and trend of high-quality development of the liquor industry are obvious, it is necessary to realize that the industrial structural adjustment in the next 3-5 years is imperative. ”

He mentioned that in recent years, although the total scale of liquor producing areas has been growing, the industrial structure has been continuously optimized, the leading role has been obvious, and the social contribution has become increasingly apparent, due to the strong economic unity and financial and tax pressure of most liquor producing areas, there are many lessons from the risk of a single production area being driven by capital enrichment.

"It's important to remind us that capacity can't just be added. The key to the sustainable development of the liquor industry is to revitalize the stock production capacity, improve the high-quality production capacity, and eliminate the inefficient production capacity. Song Shuyu said.

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