The sales expenses are higher than those of Moutai, and the "Ten Thousand Years Old Six" Gujing Gongjiu responded: expand market share

Tencent News Prism

2024-05-21 18:54Published on the official account of the "Prism" column of Tencent News in Beijing

Image source: Visual China

Author | Wen Shijun

Edit | Wang Weikai

Produced by | Prism Tencent Xiaoman Studio 

On the afternoon of May 21, 2024 is about to pass halfway, Anhui Gujing Gongjiu Co., Ltd. (000596. SZ； 200596.SZ, referred to as "Gujing Gongjiu") held a 2023 annual results briefing.

As a veteran listed company that issued A and B shares in 1996, Gujing Gongjiu's revenue in 2023 has crossed the iconic 20 billion yuan level. The total operating income of 20.253 billion yuan ranked after "Mao Wuyang Fenlu". Although compared with the seventh place of Shunxin Agriculture (000860. SZ, Niulanshan) is nearly 10 billion more, but it is not the same as the last of the top five Luzhou Laojiao (000568. SZ) is also nearly 10 billion.

The pattern of profits is slightly different, the top five companies are sorted into "Maowulu Fenyang", Kweichow Moutai (600519. SH) net profit attributable to the parent company was 74.734 billion yuan, and Gujing Gongjiu was still the sixth. However, the fifth Yanghe shares (002304. SZ) of 10.01 billion yuan, more than double the 4.589 billion yuan of Gujing Gongjiu.

Ranked after Gujing Gongjiu (603369. SH), although it has just entered the 10 billion club in revenue in 2023, the total operating income of 10.100 billion yuan has created a net profit attributable to the parent company of 3.136 billion yuan.

In 1963, at the 2nd National Wine Appraisal Conference, eight kinds of liquor, Wuliangye, Gujing Gongjiu, Luzhou Laojiao Tequ, Quanxing Daqu, Moutai, Xifeng, Fenjiu and Dongjiu were selected as national famous liquors. From this point of view, the performance of Gujing Gongjiu is not lagging behind, surpassing Shuijingfang (600779. SH), Xifeng Liquor and Dong Liquor are not among the listed companies.

At the performance briefing on May 21, in response to the author's question about industry competition and long-term strategy of "Prism", Yan Lijun, executive deputy general manager of Gujing Gongjiu, once again confidently mentioned the label of "Old Eight Famous Liquors".

"The competition in the liquor industry has intensified, and the change in consumer preferences is both a challenge and an opportunity for the company, as one of China's eight famous liquor companies, the company has won the gold medal in the national liquor competition for four consecutive times, and at the same time has a solid market foundation in the core region, with the advantages of quality and brand." Yan Lijun replied.

"Eliminate the blank counties and cities in the country"

The ancient city of Bozhou in northern Anhui has three labels: Cao Cao, Traditional Chinese Medicine and Gujing Gongjiu.

In the 1980s, the location of the Gujinggong Distillery was renamed from "Mindianji" to "Gujing Town". Sancao Avenue, Gujing Avenue and Jiudu Avenue are connected by one word, which is the traffic artery that crosses Gujing Town from west to east.

At the west end of the avenue, there is the old Gujing Gong Liquor Factory and the distillery community built in the last century. Along the avenue to the east, three kilometers south of the intersection of National Highway 105 and Beijing-Macao Line, you can see the statue of Cao Cao standing high in the middle of Gujing Bacchus Square. What is "singing about wine" with Cao Mengde is the magnificent office building of Gujing Group and Gujing Gongjiu New Factory.

The whole Gujing Town is full of Gujing Gongjiu, even in the entire Bozhou City, Gujing Gongjiu is also one of the most critical existences. Liquor is the most important industrial industry in Bozhou, and it is also the pillar of Bozhou's finances, and the tax payment of liquor enterprises exceeds 60% of the total tax payment of industrial enterprises above designated size in the city.

In the list of top 100 enterprises in Anhui Province in 2023, Gujing Group, ranked 45th, is the only company in Bozhou on the list.

Bozhou can't do without Gujing Gongjiu, just like Gujing Gongjiu can't do without the Central China market. According to the 2023 financial report, Central China accounted for 84.47% of operating income, while North China accounted for 9.10%.

Zhou Qingwu, general manager of Gujing Gongjiu, revealed in May 2023 that the data of Central China includes sales in Anhui. At the performance briefing on May 21, Yan Lijun, executive deputy general manager, said: "The proportion of structures within the province and outside the province is 6:4. This means that Anhui Province accounts for the absolute majority of the revenue contributed by Central China.

This pattern has not changed structurally in the past decade. The lowest year in Central China was 77.27% in 2014, and the highest year was more than 90% in 2018.

It was in 2018 that Liang Jinhui, who was also the chairman of Gujing Group and Gujing Gongjiu, "set a task" at the marketing strategy communication meeting in the first half of that year: it was planned that by the end of 2020, the blank counties and cities in the country would be eliminated, and the nationalization would be completed, covering more than 80% of the counties and cities, and the number of dealers would reach more than 6,000.

Subsequently, in the financial report of Gujing Gongjiu in 2019, the mention of "accelerating the pace of nationalization of Gujing Gongjiu" appeared for the first time. In the 2023 financial report, this strategy is expressed in more detail: "China will accelerate the process of nationalization, strengthen the provincial market, speed up the market outside the province, and refine the key markets".

As for the 2020 goal of "eliminating blank counties and cities across the country", the latest situation disclosed at the performance briefing on May 21, 2024 is that "the nationwide coverage rate has reached more than 70%".

At the performance briefing, the author of "Prism" asked questions about Gujing Gongjiu's ideas for expanding markets outside Central China. Yan Lijun, executive deputy general manager, replied to the "large-scale" idea of the market outside the province: "The company continues to promote the 'national, sub-high-end' strategy, create a number of large-scale provinces, large-scale markets, large-scale customers, and large-scale outlets, and further expand the company's market scale outside central China." ”

"Translation" means that compared with the provincial market, Gujing Gongjiu is a way of thinking about grasping the big and letting go of the small in the market outside the province.

Of course, regionality is the historical background color of baijiu. Anhui is also a major liquor province, among the 20 domestic listed companies in the main liquor industry in the country, four are located in Anhui, and almost every county in Anhui has its own local distillery. Therefore, the industry is known as "the east does not enter Anhui, the west does not enter Sichuan". However, as the head liquor company of Anhui liquor, if you want to go further Gujing Gongjiu, you must go out of the regional market.

It is a Yanghe product with the same Jianghuai strong fragrance type as Gujing Gongjiu, and is the representative of Jiangsu Baijiu's "three ditches and one river". In terms of financial data, the proportion of Yanghe's income outside Jiangsu Province has increased from 34.61% in 2014 to 54.63% in 2023. Shanxi Fenjiu, the representative of the fragrant type, had just over 40% of the income outside Shanxi Province in 2014, and it will be 61.57% by 2023.

The significance of the market outside the province is not only to amplify the scale effect of revenue, but also to bring more sales of high gross margin products. Judging from the 2023 financial report data, although the South China region only accounts for 6.33% of Gujing Gongjiu's revenue, the gross profit margin exceeds the Central China market by 3.77 percentage points, reaching 82.51%.

Especially in the current competitive environment, the evaluation and tasting of various types of liquor are spread on social media and short video platforms, and liquor consumers have also begun to "taste" other flavors and "upgrade" consumption of higher-grade liquor. Online channels and self-operated channels of liquor companies are changing the original distributor system, and regionality is no longer a threshold for many leading liquor brands.

Just as Chairman Liang Jinhui set the tone for 2024 in "A Letter to All Employees in 2024" - "Restructuring to Zero Year". For Gujing Gongjiu, the shadow of the crisis has always been there, and if you don't advance, you will retreat.

"If you get high-end, you will win the world"

Today's Gujing Gongjiu bears the deep imprint of Chairman Liang Jinhui.

Liang Jinhui, born in 1966, is a native of Gujing, entered the factory in 1989, and was the first to engage in internal propaganda work, and served as the director of the editorial department and the head of the propaganda section of the "Gujing" newspaper, and then began to be in charge of the marketing department.

Liang Jinhui entered the core management sequence of Gujing Gongjiu 17 years ago in 2007. This is a special time.

In April 2006, Liu Junde, the former vice president of Gujing Group, was "shuanggui". In April of the following year, Wang Xiaojin, chairman and president of Gujing Group, and his wife Peng Wenpei were taken away from their homes by discipline inspectors, and the corruption nest case surfaced.

In 1987, 38-year-old Wang Xiaojin served as the former director of Gujing Distillery in Boxian County, Anhui Province, "single-handedly making Gujing Group bigger and stronger", known as the "Godfather of Gujing" by the outside world, and his head was once printed on the cap of Gujing Gongjiu. Liu Junde, who was born in finance, won the trust of Wang Xiaojin, and was the "hero" of Gujing Gongjiu's A and B share listing in 1996, and was once considered the "successor".

In this round of anti-corruption, dozens of senior executives and department managers within the Gujing Group were investigated, and more than a dozen people were finally sent to the dock. Wang Xiaojin was sentenced to life imprisonment, and Liu Junde was sentenced to 11 years.

After Wang Xiaojin was uprooted, Gujing Gongjiu ushered in a power vacuum and a major change of management. Wang Xiaojin was replaced by Cao Jie, the person in charge of the Gujing Hotel business, who called himself a "liquor layman".

It was in 2007 that Liang Jinhui joined the board of directors and was promoted to general manager of Bozhou Gujing Sales Co., Ltd. (hereinafter referred to as the "sales company"). The sales company is a "confidential department", and the former general manager, Zhu Renwang, is Wang Xiaojin's nephew and son-in-law, who was also sentenced to 15 years in prison for taking bribes.

Today, on the official website of Gujing Group, the company's development history began in 2008.

The first major event at the beginning of the chapter is to "carry out anti-corruption and clean government warning education activities". That is, since 2008, Liang Jinhui, who has been the general manager of the sales company for a short time, began to triple jump: in June 2008, he became the deputy general manager of Gujing Gongjiu; In April 2011, he was promoted to general manager of Gujing Gongjiu; In 2014, he took over as the chairman of Gujing Group and Gujing Gongjiu.

The idea of diversification advocated by Wang Xiaojin was ended, and the "low price" strategy that made Gujing Gongjiu stand out in the 1990s was also abandoned.

Since 2008, Gujing Gongjiu has begun to reduce its product line on a large scale, "brand promotion" on top of the main brand of "Gujing Gongjiu", and launched the high-end brand "Vintage Puree" - this brand is reported to have been "personally created and launched" by Liang Jinhui. But in the liquor industry, the term "vintage liquor" originally came from the 30-year-old Moutai liquor launched by Kweichow Moutai in 1997, and the term "puree" was the marketing concept that Jian Nanchun first began to use in 1998.

In today's competitive pattern of "high-end, the world", vintage puree has indeed become the main force in the performance of Gujing Gongjiu.

According to the 2023 financial report, the vintage puree series contributed 15.417 billion yuan, more than 76% of the total operating income - while the traditional Gujing Gongjiu series only contributed less than 10% of the total operating income. The gross profit of the vintage puree is 13.204 billion yuan, and the gross profit margin is as high as 85.65%, which is an order of magnitude higher than the gross profit margin of 58.27% of the Gujing Gongjiu series.

At the performance briefing, in response to the author's questions about high-end in Prism, Executive Deputy General Manager Yan Lijun's answer emphasized the idea of "sub-high-end" and "full-price product line layout".

He mentioned: "At present, the core products are vintage puree series products, among which the more prominent sub-high-end products are Gu 20, Gu 16, Gu 8, etc.", "We will continue to adhere to Gu 20 as a strategic fulcrum to expand the sub-high-end consumer group, and at the same time continue to improve the sales scale of mid-end products Gu 5, Gift and Lao Gong Liquor to meet the needs of mass consumption."

In fact, the "Gujing" series, which was jokingly called by consumers that "Gujing does not bring tribute, and it hurts all over the body after drinking", and is questioned about the phenomenon of "OEM" OEM and purchased base wine, is not listed separately in the financial report, but is classified as 2.206 billion yuan under the item of "Yellow Crane Tower and others". Yellow Crane Tower is a Hubei liquor brand acquired and controlled by Gujing Gongjiu in 2016.

Gujing Gongjiu's financial report discloses the operating income and profit in 2023 by series. Image source: Drawn by the author

On the lintel of the gate of the new factory area of Gujing Gongjiu, the two brands of Gujing Gongjiu and vintage puree are juxtaposed.

However, the process of Gujing Gongjiu winning the trademark of "vintage puree" was quite tortuous. The first application for registration was made in November 2008 and was successfully approved in December 2016. Even in 2019, after the first instance of the Beijing Intellectual Property Court and the final trial of the Beijing High Court, the objection to the invalidity of the vintage puree trademark raised by Wuliangye was finally rejected.

Disputes continued throughout the process, including complaints from peers of wine companies, questioning that the trademark is a common term in the industry, and requesting the cancellation of the trademark registration of "vintage puree"; Some media also questioned that the numbers such as "ancient 7", "ancient 20" and "ancient 26" marked on the vintage puree series "have nothing to do with the year" and are just product codes.

It is worth mentioning that in 2012, Moutai was also criticized in the process of applying for the trademark of "National Liquor Moutai".

Perhaps it was "empathy", Liang Jinhui, then the general manager of Gujing Gongjiu, was almost the only famous liquor executive who publicly expressed his support for Moutai. Not long ago, in January 2024, Ding Xiongjun, then chairman of Moutai Group, said in front of Liang Jinhui when he visited Gujing Group, "Moutai and Gujing are old friends" and "Gujing has always supported Moutai".

And over the hills

In the 2024 Spring Festival Gala, the three brands of "Gujing Tribute Liquor", "Vintage Puree", and the core product "Gu 20" under the sub-high-end strategy will be listed as the "exclusive special broadcaster". Since 2016, this is the ninth consecutive year that Gujing Gongjiu has appeared in the Spring Festival Gala.

In fact, Gujing Gongjiu will be very intensively advertised on TV during the Spring Festival in 2024. In addition to the CCTV Spring Festival Gala, CCTV's Lantern Festival Gala and Spring Festival Opera Gala, as well as the Spring Festival Gala and Lantern Festival Gala of "hometown" Anhui Satellite TV, and Jiangsu Satellite TV's Spring Festival Gala and Lantern Festival Gala in the core strategic market are all sponsored by Gujing Gongjiu.

According to the latest 2024 first quarter report released by Gujing Gongjiu, its single-quarter sales expenses have reached 2.252 billion yuan, ranking second after Wuliangye and second among listed liquor companies.

In the 2023 financial report, Gujing Gongjiu split the details of its annual sales expenses of 5.437 billion yuan. This figure is also the second in the industry, and the sales expenses of Kweichow Moutai in the same period were 4.649 billion yuan.

Specifically, in Gujing Gongjiu's sales expenses in 2023, in addition to employee salaries and travel expenses, the largest part is "comprehensive promotion expenses", totaling more than 2.089 billion yuan. Zhu Jiafeng, secretary of the board of directors of Gujing Gongjiu, has publicly explained that this part of the cost "mainly includes consumption cultivation, marketing and other expenses". It can be considered that expenses such as marketing activities, award sponsorship, and dealer rebates that have been paid should be attributed to this.

At the performance briefing on May 21, Yan Lijun, executive deputy general manager, responded to the question of the author of "Prism" about high sales expenses from three aspects-

"Stable and sustained market investment is needed to expand market share", which explains the necessity. Digital management tools and a "four-in-one whole-process cost management system" ensure the "accuracy and effectiveness" of expenses, which is to show that it is not a random spending. "With the increase in sales scale, the company's sales expense ratio is on a downward trend", which is talking about the problem of cost control, although the total number is growing, but the proportion is converging.

From 2018 to 2023, the changes in the sales expenses of the top six domestic listed companies in terms of revenue (unit: 100 million yuan, the number is marked as the data of Gujing Gongjiu). Image source: Drawn by the author

Baijiu is a consumer product with social attributes. The role of advertising and marketing is self-evident in this track. Liang Jinhui, who was born in propaganda and marketing, is naturally very clear about this.

Especially in the past few years in 2019, Gujing Gongjiu achieved the revenue target of 10 billion yuan for the first time and began to stride towards 20 billion yuan in revenue, and the sales expenses have maintained rapid growth all year round and ranked second in the industry. Compared with the top five, the sales expenses of Gujing Gongjiu, the sixth place, are disproportionate compared with their revenue and profits.

Another feature is Gujing Gongjiu's preference for traditional advertising channels, even in today's mobile Internet era. According to the financial report data, in the whole year of 2023, among the sales expenses of Gujing Gongjiu, the subdivided advertising expenses will be 1.101 billion yuan, of which 85% will be placed on TV and offline traditional channels, and the cost will only be 166 million yuan online.

Matching the proportion of delivery, is the revenue structure of Gujing Gongjiu concentrated offline - the total operating income of 202.253 billion yuan in 2023, and the online part is only 729 million yuan.

It can be referred to Kweichow Moutai's self-operated online platform "i Moutai", whose sales revenue in 2023 has reached 22.374 billion yuan, an increase of 88.29% over the previous year. This is only a self-operated platform of Kweichow Moutai and does not include other online revenue.

In terms of the number of distributors, as of the end of 2023, there are 4,641 Gujing Gongjiu distributors, an increase of 242 from the previous year. Although the total operating income of Luzhou Laojiao exceeded that of Gujing Gongjiu by nearly 10 billion, the two figures were 1,814 and 15 respectively. In comparison, Gujing Gongjiu not only has a lot more dealers, but also adjusts more frequently.

Of course, in the traditional liquor marketing model, the huge dealer team and the accompanying dealer inventory can often become a "reservoir" for the production capacity and performance of liquor companies, supporting the growing operating income. Rebates that have been recognized but not paid to dealers are often included in the financial statements as a withholding expense. From 2020 to 2023, in the past few years when Gujing Gongjiu's revenue has climbed from 10 billion yuan to 20 billion yuan, the withholding expenses have rapidly climbed from 164 million yuan to 952 million yuan.

After all, Gujing Gongjiu has been emphasizing that it is "determining production by sales", and has clearly put forward the revenue and profit plan for the coming year in its financial reports for many years, and it has also been successfully completed.

In the 2023 financial report, Gujing Gongjiu's business plan for 2014 is "operating income of 24.450 billion yuan, an increase of 20.72% over the previous year" and "total profit of 7.950 billion yuan, an increase of 25.55% over the previous year".

Liang Jinhui, who was born in 1966, is 58 years old, and in the era when he was at the helm, taking advantage of the east wind of the market, Gujing Gongjiu's revenue has exceeded 5 billion, 10 billion, and 20 billion. Before he retires, can Gujing Gongjiu break through the 30 billion yuan mark?

At present, the strategic goal of "nationalization and sub-high-end" has not been fully realized.

Relying on the traditional Chinese medicine liquor (Huangjing Liquor, Ganoderma lucidum Liquor, Boju Liquor, etc.) launched by Bozhou, the "medicine capital", Hubei Yellow Crane Tower Liquor, Anhui Mingguang Liquor, and Kweichow Moutai Town Reserve Liquor have not yet made too many waves in the market. Even if he has been questioned many times about the purchase of base wine, he is still secretive about the production capacity, inventory, and even the amount of raw materials and grains in the financial report and the performance briefing on May 21.

In addition, the base markets of Central China and Anhui are also dealing with the hand-to-hand combat of local liquor and the intrusive competition of the top five liquor companies. As a result of the fierce competition, the trend of high sales expenses of Gujing Gongjiu in the future seems to be difficult to reverse.

This tried-and-true Anhui liquor faucet needs to be put to a greater test if it wants to cross a new hill.

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