Wuliangye, it is difficult to ride a tiger

Listing|Myotou APP

Author: Li Yujia

Header image: Visual China

On the evening of October 27, Wuliangye released the third quarter report, in the second quarter, with the assistance of strict control of shipments, digestion of channel inventory, and slower progress of channel payment collection than in the same period, the growth rate in the third quarter was not at the bottom like the second quarter, with a year-on-year increase of 16.99% in total revenue and a year-on-year increase of 18.52% in net profit attributable to the parent company, which was better than Kweichow Moutai, but not as good as Luzhou Laojiao.

If we compare the performance growth in the first three quarters of this year, the overall growth rate of Wuliangye is not ideal. At the same time, Wuliangye's share price has also appeared sluggish since the Chinese New Year this year.

(Data source: choice data)

Such stock price performance essentially stems from the market's doubts about its ability to continue growth.

The squeezing growth of the liquor industry is driven by the future performance of liquor companies is nothing more than price increase and volume increase.

So, can Wuliangye run on these two legs?

(Data source: choice data)

First, the price is difficult to go up and down

"Price increase" has not only achieved Wuliangye, but also brought troubles to Wuliangye.

In the 90s of the last century, Wuliangye took the lead in raising prices, and the price continued to rise under the market economy mechanism, and quickly seized market share with the help of the channel model of the general generation of big merchants, surpassing the "Fen Boss" to become a generation of wine kings;

During the period from 2003 to 2012, Wuliangye raised prices too quickly, channel prices were inverted, and dealers lost money. Since 2008, Moutai has gradually surpassed Wuliangye in terms of price increase timing, price increase and adjusted price;

From 2013 to 2015, the liquor price bubble encountered the ban on "three public consumption", the industry entered a deep adjustment, Wuliangye's frequent downward adjustment of prices disrupted channel expectations, and the large commercial model hindered the volume and price policy.

From 2017 to 2020, the price band of liquor expanded, Wuliangye "started a second business" under the pro-cyclical situation, and Puwu became the runner of the thousand-yuan price through high-frequency price increases.

From the above combing, it can be seen that Wuliangye has mainly used "price adjustment" as a means to respond to market changes in recent years.

Now the question is, can Wuliangye's next revenue growth be achieved by "price adjustment", or can it find new products to open new price bands and channels?

Miaotou found that the company's current revenue growth still mainly relies on Puwu, rather than other sub-brands. This is not going to change much in the short term.

Wuliangye's liquor has two series, one is the main brand Wuliangye series, the core products focus on "1+3", "1" refers to the core product 52 degrees Puwu (the current product is upgraded to the eighth generation, also known as the eighth generation of Wuliangye), "3" refers to the ultra-high-end 501 Wuliangye benchmarking Moutai vintage liquor, the classic Wuliangye benchmarking Feitian Moutai and the 39 degree low-degree Wuliangye for the regional market.

The other series is the rest of the series of liquors, which will be collectively referred to as other liquors in the financial report in 2022, including 4 national strategic brands, Wuliangchun, Wuliang Tequ, Wuliang Alcohol, and Jianzhuang.

In September 2020, Wuliangye fully completed the upgrade and listing of major brands of Jianzhuang, Wuliang alcohol, Wuliang Tequ and other series of liquors, and in 2021, the series of liquors increased by 50.78% year-on-year to 12.62 billion yuan. Later, after local leading liquor companies made efforts in mid-range liquor, the growth of series liquor was hindered, with a year-on-year increase of -3.17% in 2022, and the annual growth rate is expected to be less than 10% in 2023.

Wuliangye series revenue accounts for more than 80% all year round, which is the largest pillar of the company's revenue.

(Data source: choice data)

In the Wuliangye series, there is only one core single product of Puwu, accounting for nearly 80% of sales. Wuliangye has also tried to hit the higher price band, launching the ultra-high-end 501 Wuliangye in 2019 and the "classic Wuliangye" in 2020, but under the pressure of Feitian Moutai, the ultra-high pricing competitiveness is not high, and the sales volume is not ideal.

The growth of series liquor is besieged by local liquor companies, and it is difficult to break through the high-end of Wuliangye series, so for a long time in the future, the growth potential of Puwu determines the company's revenue potential.

Can Pu Wu take on this important mission?

(Data source: the company's disclosure and public information collation, calculated based on the fact that Puwu accounts for 80% of Wuliangye's product revenue)

The growth of Puwu comes from two ways: one is to continue to raise prices, and the other is to continue to increase volume.

Let's talk about the feasibility of raising prices first, which is difficult.

From 2015 to 2021, the basis for Puwu's intensive price adjustment and smooth transmission was to cater to the pro-cyclical movement of the liquor price band.

During this period, consumers' demand for high-end liquor surged, and Puwu became the only runner with a price of 1,000 yuan through high-frequency price increases.

At the beginning of 2022, after Moutai launched "Moutai 1935" to enter the thousand-yuan high-end liquor market, the scarcity of Puwu has decreased, and the scarcity brought by the price card is the core that supports the premium price of high-end liquor.

We can see that after the weak demand for high-end liquor required for business activities after the epidemic, the price of Puwu batch has been hovering around 969 yuan, and the lowest price is only 940 yuan per bottle. If Moutai raises prices at this time, it may bring about a suppression of demand for Wuliangye.

However, for Wuliangye, the more important question is not whether the price should be raised now, but how can the price be raised?

Only by achieving a breakthrough in the price band can Wuliangye truly break the situation.

Before Moutai's price increase, the ex-factory prices of Puwu and Feitian Moutai were 969 yuan, and after the ex-factory price of Moutai was raised to 1169 yuan a bottle, the ex-factory price of the two has been 200 yuan per bottle, and the image of Puwu's high-end liquor has been distanced from Moutai.

In the future, if Moutai continues to raise prices and Wuliangye cannot follow, the brand value of Wuliangye will be in danger of being weakened, and the risk of "declining demand - insufficient channel confidence and dumping - price continues to invert" may be highlighted.

Therefore, whether it is forced to protect the image demand of Wuliangye's high-end liquor, or to ensure future growth space, Wuliangye must gain a firm foothold in a higher price band in the future, such as the price of Puwu batch breaking through the price band of 1,000 yuan, or the classic Wuliangye replacing Puwu to become a new revenue pillar.

The troika products, brands and channels of consumer goods correspond to Wuliangye, the brand power is stable, which can be regarded as a constant, in terms of products, soy sauce liquor has been in the forefront in recent years, and Wuliangye is the leader of strong flavor liquor.

Therefore, for Wuliangye, the channel is the biggest source of variables at the moment.

2. How about channel change?

For high-end liquor, channel power and brand power are the same as the core of price support.

We believe that the channel power can be subdivided into two types, one is the thrust formed by the distributors spontaneously by the lucrative channel profits, and the other is the control formed by the fine management of the channel by the wine enterprises.

In recent years, Wuliangye has been focusing on the fine control of channels, that is, the implementation of the small business model. It tries to promote the firm price of the terminal and even achieve a premium by improving the control of the channel, so as to feed back the brand power, so as to stimulate the increase of terminal demand and ensure the growth rate of performance with "volume increase".

However, after Wuliangye followed Moutai's example to implement the small business model, the effect was not ideal.

(1) Whether the big business model works or not

Wuliangye is a typical representative of the rise of the big business model. The big business model is the general generation model, and the products under the big business model are independently determined by the first-level big businessmen, and sold to the downstream second- and third-level dealers and even terminals, and the dealers at all levels earn their own price differences.

Since 1996, Wuliangye has set up a regional general agent, a provincial general agent and a prefecture-level general agent in the domestic market, relying on the regional general agent to quickly introduce products into the blank market, increase the area of distribution area, and sink the products to cities and counties through the provincial general agent and prefecture-level general agent, improve the penetration rate, and form a multi-level marketing model.

This model has achieved the glory of Wuliangye.

Relying on the large commercial system, the OEM authorized OEM model was created, and a new brand was created by the general agent, Wuliangye was responsible for production, the general agent was responsible for sales, and the profit was negotiated and distributed, so the channel was quite profitable at that time, and the thrust was very strong.

In addition, Wuliangye made full use of the dealers' capital and resource leverage, and the dealers used the brand potential of Wuliangye to obtain rich channel profits, and Wuliangye expanded rapidly at low cost under the joint efforts of factories and merchants: in 1997, the market share of listed liquor companies once reached 54%, and it has basically remained at nearly 40% for many years since then, becoming the leader of the liquor industry at that time.

However, the disadvantages of the big business model are also obvious, in short, in two ways:

1) Under the large merchant model, the price transmission will be affected by the inventory buffer, the low-priced inventory will affect the price adjustment effect, the high-priced inventory will cause the dealer to lose money, and the large merchant will be easy to dump the goods at a low price due to the low cost of taking the goods, resulting in the inversion of the channel price;

2) Under the operation of multi-level channels, channel management is not refined enough, and it is difficult to accurately control channel inventory, terminal prices, and market trends, which affects timely decision-making.

From 2006 to 2014, Wuliangye adjusted its prices 11 times, and the profits of dealers were seriously compressed, and the channel power was insufficient, resulting in the continuous harvesting of Moutai with open market share and flattened channels.

(2) What problems can the small business model solve?

At the beginning of the second venture in 2017, Wuliangye began to implement a series of reforms to de-commercialize, the core of which was to weaken the volume of dealers, realize the control of channels and terminals through external forces, and limit the pricing power, but did not solve the essence of low channel profits.

Wuliangye followed Moutai's example to implement the small business system, and the reform was basically completed in 2019, compared with the revenue proportion of its top five dealers in Moutai, both of which were 18% in 2020, 9.15% in 2021, 14.13% in Moutai, and 1.81 percentage points higher than Moutai in 2022.

(Data source: choice data)

In addition, Wuliangye has also introduced a profit-sharing model.

The difference with the large business model is that the products under the large business model are priced independently by dealers at all levels, which is easy to lead to uneven profit distribution in different links, such as the pricing of first-level large merchants is too high, and the profits of downstream small dealers are insufficient, which will naturally affect sales enthusiasm. The profit distribution is to realize the reasonable distribution of profits among dealers at all levels by agreeing on the benefit distribution system in advance.

However, the same implementation of the small business system, why Moutai can raise prices counter-cyclically, and Wuliangye is still facing the problem of channel price inversion? The fundamental reason is that the channel supply and demand relationship of Wuliangye Puwu is different from that of Feitian Moutai, and the root causes are as follows:

First, the soy sauce wine represented by Feitian Moutai has the theory that the more it is stored, the more fragrant it is, so it has certain financial attributes, while Wuliangye, as a representative of the strong fragrance type, is not likely to form a trend of short supply without this characteristic.

Because of the characteristics of the brewing process, generally speaking, the taste of sauce-flavored liquor will change significantly after 1~2 years, the aroma is more sufficient, and the taste is better, Feitian Moutai is said to be the best drinking taste time for storage for 10-30 years, which is also the reason why the price of Feitian Moutai wine for more than 2 years will be much higher.

Therefore, a large part of the demand for Moutai by both distributors and consumers comes from the demand for collection, which gives Feitian Moutai investment attributes, and the new channel increment can always be digested by the demand for collection, and the terminal price is very strong.

However, the long-term storage of strong flavor liquor will not change as much as the taste of the sauce flavor type, which is also the reason why Wuliangye in old years can rarely be sold at a high price. Therefore, dealers and consumers do not have the demand for hoarding five grains and liquids, and the amount that the channel can accommodate is relatively fixed for a period of time, and once the supply is oversupply, it is easy to invert the price.

Second, the profit of Wuliangye's channel is too low, which affects its control of the channel.

The small business model allows wine companies to get rid of their dependence on first-class large merchants and make the management of channels more refined, but this model does not necessarily allow wine companies to have control over the batch price and terminal transaction price.

Moutai is actually a special case of the small business model: its higher channel profits and the motivation to hoard goods weaken the shortcomings of the small business model, so the relatively easy turnover of small businesses has contributed to the easy to raise prices and difficult to reduce prices.

The product attributes of Wuliangye are determined that it is impossible to solve the problem of low channel profits through the control of profit distribution (when the terminal demand is good, the profit of the whole channel is only 50~70 yuan/bottle), Puwu is a drainage product rather than a profitable product for dealers, and there is no hoarding and reluctance to sell psychology.

From the financial statements of Moutai and Wuliangye, we can also see the strength of their voice in the channel.

The first is the small-scale notes receivable and accounts receivable of Moutai strictly before the payment, and the second is the large-scale pre-receivables that occupy the dealer's funds.

In 2022, Moutai's pre-receivables will be as high as 15.472 billion yuan, and the notes and accounts receivable will only be 126 million yuan, while Wuliangye will be the opposite, with a total of 29.06 billion yuan in notes and accounts receivable and 12.379 billion yuan in advance receivables. In the first three quarters of 2023, the difference between Moutai's advance receipts and receivables was 11.264 billion yuan, and that of Wuliangye was -16.57 billion yuan.

(Data source: Choice data, from 2022, most of the "notes receivable and accounts receivable" in Wuliangye's financial report are counted in the category of "receivables financing")

Therefore, the small business model allows Moutai to continuously obtain performance increments through price increases or direct sales channels, but it cannot help Wuliangye solve the problem of price inversion.

(3) The price control will continue

If the problem of price inversion is not solved, controlling the volume and price will be the main theme of its long-term channel management, even if Wuliangye has new production capacity this year and next year, the company's volume increase space is very limited under the requirements of volume control and price support.

It is expected that the company's revenue growth rate will most likely remain at about 15%. If all the new production capacity is put into operation in 2025, the growth rate is expected to be at a high limit of 10%.

(Data source: choice data)

In fact, Wuliangye also sees its own problems.

On December 18, at the 27th 1218 1218 Consultation, Co-construction and Sharing Conference of Wuliangye, the chairman of the group, Zeng Congqin, made a statement at the beginning, "Reasonable channel profit is the primary problem we must work hard to solve, and we will never let dealers suffer." ”

According to the information disclosed by the dealer, next year, Wuliangye is likely to reduce the quantity in the general five plan by 20%, and control the volume and price in order to straighten out the positive cycle of operation.

Although the short-term shrinkage will inevitably put pressure on the company's performance next year, the problem of price inversion must be solved.