Who runs faster after the epidemic in Guizhou Moutai and Diageo?

21st Century Business Herald reporter Wen Jing Chongqing reported that recently, the performance report of the world-renowned liquor group Diageo in fiscal 2021 was released, and the multinational company spanning spirits and beer returned to the growth track with the help of the control of the epidemic, the strong recovery of the Chinese market and the development of global non-ready-to-drink channels. Its net sales are close to the level of the pre-pandemic fiscal year 2019. (Note: Fiscal year ends June 30 of the current year)

Also experienced the epidemic. As early as the 2019 performance report, it was announced that the sales and profitability of single products continued to rank first in the global liquor industry, and Moutai (600519. SH) Compared to Diageo, who is running faster in the post-pandemic era?

As early as 2017, Guizhou Moutai whose market value exceeded that of Diageo at that time put forward the concept of the post-100 billion era in the 2020 annual report: to "benchmark the world-class enterprise management improvement action", improve corporate governance, vigorously promote the construction of modern enterprise system, improve the level of governing enterprises according to law, and comprehensively improve corporate governance capabilities.

Therefore, in addition to the market value and profitability far ahead, the same spirits leading enterprise, the changes that have occurred in Guizhou Moutai are conducive to observing the gap between it and the world's first-class enterprises; with whisky accounting for the majority, the North American market as the largest market, Diageo entered the Chinese liquor market through Shuijingfang, and its foreseen liquor development trend also made this liquor giant that is good at investment and mergers and acquisitions a competitor that cannot be ignored.

Guizhou Moutai revenue growth rate is faster than Diageo's global growth rate

After the epidemic, the market value of Moutai in Guizhou reached 3.2 trillion yuan at one point in February this year. Even if the funds flee, the liquor sector continues to decline, and on August 13, Guizhou Moutai closed at 1700.04 yuan per share, still creating a market value of 2.14 trillion yuan. Diageo's stock price on the day was 201.58 yuan, up 1.27%, with a total market value of 117.8 billion US dollars, not as good as Guizhou Moutai.

But the global liquor revenue boss is still Diageo.

According to the financial report, in fiscal 2021, Diageo achieved net sales of 12.7 billion pounds (equivalent to 114 billion yuan) year-on-year growth of 8%. Diageo, which has experienced the epidemic, is still in a period of performance recovery. Publicly available information shows that in the 2019 financial year, the group achieved net sales of £12.867 billion.

Today, Diageo's single-digit revenue growth rate is clearly slower than in previous years. According to the acquisition report released by Shuijingfang, a subsidiary of Diageo Holdings, Diageo's net sales had reached £12.1 billion as early as FY2017, an increase of 15% year-on-year.

In FY21, from a market perspective, the main markets that pulled down the growth rate were the African market, with net sales up only 5% year-on-year to GBP1.4 billion, while net sales in Europe and Turkey were GBP2.55 billion, a slight decrease from the previous financial year. Unlike the increase in sales of spirits, beer sales fell sharply. Affected by the epidemic, Europe's tourism retail industry has suffered a sharp setback, which has also affected alcohol.

The north American market saw double-digit growth year-on-year growth, with Diageo's net sales of £5.2 billion, up 13% year-on-year, and Latin America and the Caribbean with net sales of £1 billion, up 15% year-on-year. Net sales in the Asia-Pacific region were £2.49 billion, up 10% year-on-year.

Among them, the Chinese market grew strongly, with net sales increasing by as much as 38% year-on-year, while North Asia and Southeast Asia were seriously affected by the epidemic, and the growth rate of sales was slow. Driven by Chinese liquor and whisky, Diageo's sales of spirits in the Asia-Pacific region increased by 12% year-on-year.

In response to the pandemic, Diageo has launched a "Revive Bar" initiative around the world, investing $100 million in 35,000 bars in 11 countries to help bars resume operations. Among them, the Chinese market plans to invest more than 14 million yuan, covering more than 1,000 bars and catering establishments in 6 cities.

In contrast, from the second half of last year to the first half of this year, the operating income of Guizhou Moutai, China's leading liquor company, totaled 100 billion yuan, which was less than Diageo. But its 11% year-on-year growth rate has outperformed the spirits giant's global pace.

Under the background of the Chinese government's timely control of the epidemic and the bottoming out of the liquor industry in the peak season, since the second half of last year, Guizhou Moutai has maintained double-digit growth under the sales volume of hundreds of billions of yuan, thanks to channel changes, sales increases and changes in product structure. Guizhou Moutai financial report shows that by the end of June this year, the company's direct sales channel revenue doubled, close to 10 billion yuan, accounting for nearly 20% of the overall revenue from about 10% a year ago.

It is the Chinese consumers' pursuit of a bottle of Feitian Moutai that is difficult to find, and at the beginning of last year, under the company's goal of "unchanged plan, undiminished task, unscheduled indicators, and unsaltered revenue", the revenue of Guizhou Moutai has risen steadily, and there has been no "recovery" growth caused by the epidemic in Diageo worldwide. Especially in the second quarter of this year, the revenue of Guizhou Moutai was 21.8 billion yuan, an increase of 11.5% year-on-year, which is comparable to the year-on-year growth rate of revenue in the second quarter of 2019.

According to the business targets disclosed by Guizhou Moutai in its annual report, this year's total operating income will increase by about 10.5% over the previous year.

Diageo's growth momentum depends on Shuijingfang?

In fiscal 2021, the fastest growing market for diageo's net sales is China. In the Chinese market, two major liquors have become growth engines to lead the world, namely the liquor sector represented by Shuijingfang and the Scotch whisky sector, and their net sales increased by 53% and 21% year-on-year, respectively. Shuijingfang's sales growth was second only to Diageo's tequila, which saw net sales increase 67% year-on-year.

Since 2011, it has taken a controlling stake in Quanxing Group, thus indirectly controlling Shuijingfang (600779. SH) so far, Diageo has finally received a share of the consumption upgrade, China's liquor to the dominant enterprises and advantageous brands concentrated a piece of the pie.

Although shuijingfang experienced a decline in performance in the year of the new crown epidemic, the strong rebound in the first half of this year, especially in the first quarter, in fiscal 2021, Shuijingfang achieved revenue of 4.04 billion yuan, achieving the best results created by Diageo after entering the Chinese liquor industry. In the previous fiscal year, the figure was only $2.66 billion. Shuijing Liquor's revenue growth rate ranks first among Diageo's real estate brands.

Compared with Diageo's sales scale of more than 100 billion yuan, Shuijingfang's revenue accounted for only 3.5%, which is less than the net sales of tequila in the company accounted for 8%, and it cannot be compared with Scotch whisky (net sales accounted for 23%) and beer (net sales accounted for 15%). Shuijingfang and Crown Whisky from North America, Buchanan Whisky, and McDowell One produced by India's United Wines co-opted together account for 20% of Diageo's net sales as "local stars".

However, from the perspective of revenue, Shuijingfang's position in the group is increasing day by day. In fiscal 2021, Diageo's operating profit was £3.7 billion (33.2 billion yuan), up 75% year-on-year and less than half of Kweichow Moutai's operating profit (69.6 billion yuan) for the same period. However, Shuijingfang's operating profit was 1.38 billion yuan in fiscal 2021, accounting for 4.2%, which exceeded its share of Diageo's net sales.

More importantly, Shuijingfang's revenue growth rate exceeds its revenue growth rate. In fiscal 2021, Shuijingfang's operating profit increased by as much as 78% year-on-year!

As a wedge nailed into China's liquor sector, Shuijingfang's performance has allowed Diageo to readjust its investment map. In April this year, a paper acquisition announcement moved the actual controller of Shuijingfang to Relay B.V., an investment company wholly owned and indirectly held by Diageo. Relay B.V. has acquired a nearly 56% stake in United Wines, India's largest spirits company. In the 2020 financial year, the company lost £2.25 billion.

"Our biggest mission is to make Shuijingfang the head of Chinese liquor brand, and to continue to grow its market share in the sub-high-end and high-end every year to achieve continuous improvement of brand value." On June 8 this year, at the shareholders' meeting of Shuijingfang, Zhu Zhenhao, vice chairman of Shuijingfang, said.

As an important aroma type of Chinese liquor, the high gross profit margin of sauce liquor has also attracted Diageo's only liquor company in China. On August 2, Shuijingfang issued an announcement that the preliminary negotiations with Guowei Liquor Group in Moutai Town, Guizhou on the production of sauce wine were terminated, but although the framework agreement was invalid, the two sides will continue to explore potential cooperation opportunities, and there is uncertainty in reaching a consensus on the way of cooperation.

In this regard, Zhu Zhenhao also said that as a liquor company, if there are good projects and opportunities, it will definitely pay attention to and "do the right thing at the right time".

Compared with Guizhou Moutai, the volume of Shuijingfang is too small, but the latter's profit growth space is optimistic about many investors. Since Shuijingfang announced on April 10 to negotiate with sauce and wine companies, the stock price has continued to rise to a limit of more than 100 yuan. Later, in the continuous adjustment of the liquor industry, Shuijingfang still stands in the range of 100 yuan shares.

Compared with the year-on-year growth rate of operating profit of Diageo and Shuijingfang, the operating profit growth rate of Guizhou Moutai in fiscal 2021 was much slower, at 11%.

When the production capacity is constrained by environmental factors, and the growth rate brought about by structural improvement and channel adjustment is not as fast as the amount of volume, how can its advantages be highlighted? Guizhou Moutai put forward the strategic plan during the "14th Five-Year Plan" period, with the development idea of concentrating the main business, adjusting the structure, strengthening supporting facilities and constructing the ecology, promoting the construction of quality Moutai, green Moutai, vitality Moutai, cultural Moutai and sunshine Moutai and consolidating the position of Moutai liquor as the first brand of distilled liquor in the world.

In fact, as early as after becoming the world's first market capitalization, Li Baofang, the former chairman of Guizhou Moutai, put forward reflection the following year, "What else do we do better than Diageo?" He realized that although Moutai has achieved some advantages in indicators such as single product sales and stock market value, there is still a considerable gap with well-known multinational liquor companies in terms of the degree of internationalization of market development, the international level of corporate governance, and the cross-cultural influence ability of brand communication.

"Kweichow Moutai needs and must rely on internationalization to achieve greater development, which puts forward higher requirements for the company's operation and management capabilities." Zhao Jun, a researcher in the food industry at the Xiangcai Securities Research Institute, has long pointed out that internationalization is the greater challenge for Moutai in Guizhou. Kweichow Moutai wants to learn from Diageo, and taste is not an obstacle to internationalization. Multi-brand management is also the way to diageo's success, how to integrate into the cultural customs of different countries has its own unique approach. Diageo's concept of "rational drinking" is also worth learning, Moutai wine needs to establish a brand concept and brand spirit for its own internationalization, in order to go further.

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