Chinese Wine 2024: Difficult to save yourself, and meet strong enemies again

Zebra consumption Yang Wei

With the resurgence of imported wine into the Chinese market, how can the Chinese wine industry, which has not yet come out of the quagmire, take over?

In 2023, there will be more than ten listed companies in the wine sector, and only Changyu's fundamentals can barely be seen, and most of them will have better performance than nothing, or even long-term losses.

In the context of the difficulty in the growth of China's wine market, domestic players have to bite the bullet and carry out high-end. However, unlike the liquor or beer market, wine has not yet completed its market popularization, and in the face of the squeeze of imported wines, forced premiumization will only make the road for local brands narrower and narrower.

Wine pseudo-resurgence

After a year of hard work, the wine industry seems to have a little warmth.

According to the data, in 2023, the total output of winemaking in the national wine industry will be 300,000 kiloliters, a year-on-year increase of 3.4%; The cumulative sales revenue was 9.09 billion yuan, a year-on-year increase of 4.8%; The cumulative total profit was 220 million yuan, a year-on-year increase of 2.8%.

In the context of the total shrinkage of the liquor industry last year, the growth rate of revenue and profits fell sharply, and the beer opened high and low throughout the year, wine and rice wine grew against the trend, and the scale of wine increased more obviously, which is really rare.

Is this a sign of recovery in the wine sector? In fact, it's just that the decline in the previous years has been too large, and the decline has barely stopped at the moment. In 2023, the wine industry remains bleak and the differentiation is clearly accelerating.

In terms of revenue, although only two listed companies in the wine sector experienced a year-on-year decline in revenue, most of them were small. Changyu A (000869.SZ) had an operating income of 4.385 billion yuan last year, nearly half of the industry's total revenue, and more than five times that of the second place ST Tonglu (600365.SH).

Among the mainstream wine companies, Weilong Co., Ltd. (603779. SH) had the largest decline, with an operating income of 385 million yuan last year, down 22.85% year-on-year. The revenue of Loulan Winery, Yiyuan Winery, and Fasette Wine is less than 100 million yuan.

In terms of net profit, Changyu A's total profit reached 747 million yuan, about three times the overall scale of the industry, which shows how miserable other players are living.

Six companies, including ST Tonglu, Weilong and Tongtian Liquor, are in a state of loss. Among them, the net profit loss attributable to the parent of Weilong Co., Ltd. was 155 million yuan, the highest loss, and the net profit loss attributable to the parent of Tongtian Liquor was 80 million yuan, an increase of nearly two times over the same period last year.

Dynasty Liquor (00828.HK) HK) and Yiyuan Liquor achieved a profit, about HK$21 million and RMB100 million respectively, which is better than nothing.

Of course, Changyu's overall performance is also quite bizarre. In the first three quarters of 2023, the company's revenue and net profit attributable to the parent company decreased by 0.35% and 2.26% year-on-year respectively, but Q4 suddenly reversed the decline in performance in one fell swoop, driving the annual revenue and net profit attributable to the parent company to increase by 11.89% and 24.20% year-on-year respectively.

However, in the first quarter of this year, the company was once again beaten back to its original shape. revenue decreased by 28.34% year-on-year; Net profit decreased by 42.57% year-on-year. Combined with the data that last year's dealer revenue increased by 13.83% and direct revenue increased by only 2.05%, there may be doubts about completing the performance by pressing the dealers.

From the perspective of the extended cycle, in 2019, Changyu A's revenue and net profit attributable to the parent company were 5.074 billion and 1.141 billion respectively, and now it is trying to get out of the quagmire. Whether it can return to 5 billion yuan in revenue in 2024 is still a problem.

Looking at the industry as a whole, most wine companies are having a hard time. According to the data, in 2023, the number of domestic wine enterprises above designated size will decrease by 15 to 104, a decrease of 57% from 244 in 2017.

The death of premiumization

The situation that domestic wine is not as good as a year ago was initially due to the introduction of the three-public consumption reform and the zero-tariff policy for foreign wines.

In desperation, China's wine industry began to follow the liquor and beer to promote the high-end process. Try to make a "high" product structure, and use price increases to hedge the losses caused by the decline in sales.

The pyramid was stable because of its large base. Liquor and beer will first popularize the market, and then enhance the value of the industry; As for wine, the popularization of consumption has not yet been completed, and it has begun to be high-end, like a castle in the air.

The industry leader is still like this, and the other little brothers are even more indescribable. It is clear that the Great Wall wine, due to the market development of high-end products is less than expected, and the impact of factors such as shrinking consumption, the company's performance has suffered a cliff-like decline in recent years; The same is true for Tongtian Liquor.

Premiumization is a double-edged sword. It can increase business value, but it also requires long-term brand investment, which can lead to increased operating costs.

In 2023, Changyu A's sales expenses will increase by 20.49% year-on-year, in exchange for a revenue growth rate of 11.89%. During the same period, the operating cost of high-end liquor increased by 95.67%, but the operating income only increased by 73.18%.

Moreover, in terms of the long-term development of the wine industry, the low-quality, homogeneous and high-end of the whole industry will further block the popularization process of the market.

In the face of survival, there are not many wine players who are willing to bow down and deeply cultivate the affordable consumer market. In the long run, the entire industry can only run blindfolded on the road of high-end, and eventually fall into a vicious circle of niche.

Then meet the impact of imports

Just as China's wine industry is struggling with the total volume crisis and the challenge of premiumization, greater pressure is coming.

Following the end of the return of Australian wines to China in March this year, Serbian wines are also planning to enter the Chinese market with lower or even zero tariffs, and at the same time, China and France have announced that they will continue to deepen ties in the field of viticulture and winemaking.

The improvement of the wine import environment has a huge impact on domestic brands. In early April, Fortune, Australia's largest wine company, announced that it would raise the price of its Penfolds wines due to rising demand in markets such as China.

In the early years, when domestic wine brands promoted their products, they focused on Western-style culture, excessively pursued aristocratic ritualization, and demanded strict tasting methods, resulting in the perception of domestic users who were not as good as imports.

Domestic wine manufacturers also mostly promote the high-end of their brands by acquiring foreign wineries. Since 2013, Changyu, the local boss, has acquired six major wineries in France, Spain, Chile, Australia and other major wine-producing countries. However, after a series of acquisitions, the performance of many listed companies has been dragged down.

In the long term, a large number of imported wines will enter China, and the competition will be further intensified. With the advancement of high-end domestic wine, the price of domestic wine has stabilized over that of imported wine. According to the China Wine Industry Association, the average price of imported wine products in 2021 was 25.23 yuan/L, while the average price of domestic wine has reached about 33.7 yuan/L.

Imported wines, which are more cost-effective, have an obvious squeeze on the local market. According to the data, in 2022, China's imported wine accounted for 60.39% of the total consumption, while domestic wine accounted for only 39.61%.

With imported wines gaining momentum again, how will China's wine industry, which has not yet come out of the quagmire, give full play to the advantages of home battles and regain the initiative in the market?