Shuijingfang, foreigners are in charge, the more mixed the worse

Author: Xu Feng, Editor: Xiao Shimei

Recently, the resignation of senior executives has brought Shuijingfang back into the market spotlight. The company announced that Ma Yongqiang will no longer serve as an independent director and a member of the nomination committee due to work adjustments. And this is after the change of general manager just in March 2023, there is another change in senior management.

As one of the "six golden flowers" of Sichuan wine, Shuijingfang has encountered a bottleneck in its development in recent years. Premiumization has stalled, senior management changes are frequent, growth is maintained by marketing, and performance is already showing weakness, but the real test has just begun.

【Frequent changes in senior management】

Ma Yongqiang's change is a microcosm of the instability of Shuijingfang's management.

Since mid-2021, nearly 10 senior executives, including general manager, secretary of the board of directors, and chairman of the board of supervisors, have changed, and they have not been in office for a long time.

Taking Ma Yongqiang, an independent director who resigned this time, as an example, his tenure has only been more than 2 years since he took office in June 2021, but this is not a short period among many changed executives. For example, Chen Daili, the former chairman of the board of supervisors, served for less than three months from June to the end of August, and Deng Na, the former secretary of the board of directors, served only five months from November to April of the following year.

In the long run, Shuijingfang is also like flowing water in the appointment of general managers, and has gone through 6 general managers in the past 10 years since 2013. These include three foreign executives, Ke Siming, Rice and the newly appointed Ai Inhua, Chinese professional managers Fan Xiangfu and Wei Yongbiao, and former Diageo internal executive Zhu Zhenhao.

As the only foreign-controlled listed liquor company in China, the frequent change of the position of general manager is mainly related to the professional manager system of Shuijingfang. Further, the reason for the change is performance.

For example, during the tenure of Ke Mingsi and Rice from 2010 to 2015, Shuijingfang's performance fluctuated significantly, and there was a serious "lack of adaptation".

Especially in 2013 and 2014, Shuijingfang's performance shrank rapidly, net profit lost for two consecutive years, and the stock was ST, and even lost 403 million in 2014, creating the lowest net profit since listing. In 2010, the net profit was 235 million, ranking 8th in the industry, and in 2014, it fell directly to the bottom 1.

Since then, Ke Mingsi and Rice have resigned, and both have served for no more than three years. It was not until Fan Xiangfu took office that he gradually got out of the crisis.

Fan Xiangfu has been in office for the longest time, more than four years, and resigned in 2019 more because of his age, when he was over 60 years old. In 2020, the resignation of Wei Yongbiao, who has only been in office for one year, may be a decline in performance.

Chu's departure is also related to performance. Since taking office in 2020, his performance has stagnated in 2022 after a brief increase in 2021.

It is worth mentioning that in the fourth quarter of 2022 and the subsequent first quarter of 2023, the decline in Shuijingfang's performance was completely demonstrated. The revenue growth rate was -25.37% and -39.69% respectively, and the net profit growth rate was -19.06% and -56.02%, both of which showed a significant slowdown. And Chu Zhenhao also resigned in February 2023.

Because there is nothing wrong with the replacement of the general manager in performance, but the frequent replacement will inevitably cause instability in the implementation of corporate strategy and operation. Shuijingfang has been emphasizing the high-end strategy before, and it is also in a dilemma in the continuous change of general managers.

[High-end almost failed]

For a long time, high-end, as an important strategy of Shuijingfang, has not achieved good results.

Shuijingfang, formerly known as Quanxing Distillery, is said to have been renamed Shuijingfang in 1998 when the distillery was rebuilt and found the remains of ancient winemaking buried in the ground, which is the oldest winemaking workshop in the world, spanning 600 years, and is known as "the first liquor workshop in China".

With the title of "China's No. 1 Liquor Workshop", Shuijingfang has positioned high-end liquor since its birth in 2000, with a product price of more than 600 yuan, refreshing the price height of the liquor industry. You must know that the prices of Moutai and Wuliangye were still in the range of 300-500 yuan at that time

However, compared with other high-end products, Shuijingfang has long been absent in the high-end field.

The specific reasons are, on the one hand, related to the frequent replacement of senior executives and unstable strategies. As early as 2006, Shuijingfang launched an internationalization strategy and began to introduce foreign capital Diageo. However, there has not been much progress in its internationalization process.

By 2013, when Diageo wholly owned Quanxing Group, its overseas revenue never exceeded 80 million. Not only that, but as of today, overseas income is still at the level of tens of millions. It has been proven that Shuijingfang's expectation of scale expansion with the help of Diageo's overseas channels has been disappointed.

In the early years of his tenure, Cumins and Rice put forward strategies to open up the international market and create FMCG products, respectively, which deviated from the previous strategic focus of building high-end brands.

It was not until Fan Xiangfu took office that high-end was once again regarded as an important strategy of the company. For this reason, Fan Xiangfu even gave up the low-end market below 300 yuan, trying to catch up with Moutai and Wuliangye.

For example, in April 2017, Shuijingfang launched a collector's master edition priced at 899 yuan, benchmarking against Wuliangye, and then it restarted the ultra-high-end single product Jingcui, priced at 1699 yuan, targeting Feitian Moutai.

Among the subsequent general managers, except for Wei Yongbiao, who proposed to focus on the sub-high-end category in 2020, the rest insisted on taking the high-end route. Even Zhu Zhenhao once expressed his hope that it could become the head brand of strong flavor wine. The only leading brands of strong aroma liquor are Wuliangye and Luzhou Laojiao, and it is obvious that Zhu Zhenhao hopes to be far from them.

Turning over the report of Shuijingfang, it can be found that its so-called high-end products are mainly sub-high-end, and the proportion of high-end product revenue is still low. According to the research of Huaan Securities, the high-end collection series accounted for only 8% of the revenue, and the main products are still the sub-high-end Zhenjiu No. 8 and the well platform, accounting for 88% of the total revenue.

Another major reason for the failure of Shuijingfang's high-end is the lack of cultural genes. Compared with other famous liquors, it lacks history and culture, and the brand strength is not as good as that of first-line liquor, but the price is high.

Perhaps only Wei Yongbiao, who was the main and sub-high-end at that time, really saw the core problem of Shuijingfang, and if he was still in office at the moment, it might be another scene.

In order to improve the high-end image of the brand, Shuijingfang can only put more energy into marketing.

[Heavy reliance on marketing "crutches"]

When it comes to marketing spending, Shuijingfang has always been generous.

In recent years, Shuijingfang's sales expenses have increased year after year, and the sales expense ratio is significantly higher than that of other famous wine brands. From 2017 to 2022, Shuijingfang's sales expenses have increased from 551 million to 1.279 billion, and the sales expense ratio has been between 26% and 30%.

In the first half of 2023, Shuijingfang's sales expense ratio soared to 35.97%. The sales expense rate of Wuliangye, which is also the "Six Golden Flowers" of Sichuan Liquor, is 9.49%, Luzhou Laojiao is 10.97%, and Shede Liquor is 17.52%.

At the same time, in the first half of 2023, Shuijingfang's high marketing expenses have supported the performance purpose, but even so, the inventory problem has not improved significantly, and the company's growth has slowed down since 2022 because of the digestion of inventory.

Since 2017, Shuijingfang's inventory has risen all the way, from 920 million to 2.429 billion in the first three quarters of 2023, which has exceeded the operating income of 3.588 billion in the same period by 65%, and there is still no sign of slowing down.

In addition to marketing expenses, management expenses are also a money-burning job.

On the one hand, the problem is in the channel model, which is different from the current mainstream flat management mode, Shuijingfang still adopts the traditional multi-level provincial agency system, and the increase in channel links will inevitably increase the cost burden.

In addition, higher levels of management pay have resulted in higher overheads. For example, the former general manager Fan Xiangfu's annual salary exceeds 5 million, Zhu Zhenhao's annual salary even exceeds 8.5 million, and compared with his peers, Lin Feng, general manager of Luzhou Laojiao, has an annual salary of 1.6269 million, and the general manager of Gujing Gongjiu is in the early 1 million.

In the first half of 2023, the management expense ratio of Shuijingfang will be 13.15%, which is significantly higher than Kweichow Moutai's 5.4% and Luzhou Laojiao's 3.7%.

Under the squeeze of expenses during marketing management, the profitability of Shuijingfang has also been affected. The company's gross profit margin of more than 80% was not low, and in the first three quarters of 2023, it ranked third among listed wine companies, second only to Moutai and Luzhou Laojiao, but the net profit margin was 28.49%, but the ranking fell to 9th.

What also makes Shuijingfang anxious is that while the high-end route fails, the low-end product line is also seriously lacking, and the growth stamina is insufficient. In 2022, the strategy of supplementing the low-end market was proposed, and a new version of Tianhao Chen was launched.

However, the timing of Shuijingfang's change at this time was too late, and the scale of low-end revenue was too small, which had a limited impact on the company's overall performance. In the first half of 2023, the revenue of mid-range wine will be 86 million, accounting for only 5.64% of the revenue.

On the whole, the high-end and performance problems of Shuijingfang are no longer easy to solve by replacing the general manager. Standing at the moment, let go of the high-end obsession and do a good job in sub-high-end basic and expense management is the key.

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The content of this article related to listed companies is the author's personal analysis and judgment based on the information publicly disclosed by listed companies in accordance with their legal obligations (including but not limited to temporary announcements, periodic reports and official interactive platforms, etc.), and the information or opinions in this article do not constitute any investment or other business advice, and Market Value Watch does not assume any responsibility for any actions arising from the adoption of this article.

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