Article by the Liquor Industry Home Team Everyone says the liquor industry is recovering, but whose recovery is it? From the performance forecasts of 16 listed liquor companies, 12 including Kweichow Moutai, Yanghe, Shanxi Fenjiu, Jinshiyuan, Shede, Swellfun, Jiugui, Hainan Yedao, Zhujiang Beer, Chongqing Beer, Lanzhou Huanghe, and Kuaijishan reported positive results, accounting for 75%. Based on the forecast data alone, the industry indeed appears prosperous. Liquor companies often say at meetings, "We want distributors to make money," but are the frontline liquor merchants actually making money? How much have their profits increased? To find out, the Liquor Industry Home Team surveyed over 60 distributors at various levels from 13 provinces across the country, only to find that liquor merchants are still complaining... More than half of liquor merchants are dissatisfied with their profits during the 2018 Spring Festival Price increases were the main theme for Chinese baijiu in 2017, with famous brands leading the rise, regional leaders following, and local brands not willing to lag behind. Coupled with the arrival of the peak Spring Festival season, the industry had high expectations for this period, which accounts for one-third of annual baijiu sales. So, after multiple rounds of price hikes, what is the profit situation for liquor merchants? What about the profit situation for distributors of famous brands after the price surge? Just after the Spring Festival, the Liquor Industry Home Team conducted surveys in markets at various levels in Hefei, Hangzhou, Shanghai, Guangzhou, Chengdu, Deyang, Mianyang, and even some township markets. The survey found that liquor merchants are not satisfied with their profits. Among the 36 liquor merchants surveyed (including distributors, secondary wholesalers, sub-distributors, and retail terminal merchants), 29 were satisfied with sales during the Spring Festival, a satisfaction rate of 81%; only 2 were satisfied with profits, accounting for 5% of the total; 6 were relatively satisfied, accounting for 17%; 6 considered profits average (passable), accounting for 17%; and 22 were dissatisfied with profits (including 15 retail terminal merchants and 7 distributors/sub-distributors), accounting for 61%. Thus, more than half of the liquor merchants are not satisfied with their profits during the 2018 Spring Festival. The Liquor Industry Home reporter also paid special attention to liquor sales in township markets during the Spring Festival. Various gift liquors from Maotai Town, Luzhou, and other places were piled up in small supermarkets and consignment stores, and they were selling well. "After the 'Little New Year' (the 23rd day of the 12th lunar month), we sell dozens of cases every day, almost a month's worth of sales in normal times. But consumers now know the prices, so the profit is pitifully thin. We even sell a bottle of baijiu priced at dozens of yuan for a gross profit of 5 yuan," said Sister Liu, owner of a medium-sized supermarket in Xinsheng Town, Luojiang County, Deyang. She told reporters that this year's Spring Festival liquor sales increased by more than 35% compared to the same period last year, a significant increase. Regarding liquor merchant profits, the Liquor Industry Home research team conducted the following statistics. Preliminary statistics show that there were 16 famous brand liquor merchants (distributors and sub-distributors), accounting for 26% of the total, with comprehensive gross margins between 4% and 9% (taking the highest and lowest values); 7 merchants of famous brand series liquors, accounting for 12%, with comprehensive gross margins between 11% and 18%; 17 merchants of regional famous brands and strong local brands, accounting for 28%, with comprehensive gross margins between 8% and 23%; 19 merchants of ordinary small and medium brands, accounting for 31%, with comprehensive gross margins around 10%; and 2 merchants of Moutai's general distribution products, accounting for 0.3%, with comprehensive gross margins around 30%. Is making money for liquor merchants divided into Moutai and non-Moutai? "It's the Moutai distributors who make money, but unfortunately we're not. For other liquors, when the distillery raises prices, the merchants can't raise their selling prices, so how can profits increase?" retorted Wang Jin (pseudonym), a baijiu distributor in Hangzhou. The Liquor Industry Home reporter found that many liquor merchants agree with this view. From feedback from distributors across the country, although liquor company performance is booming, it is still difficult for liquor merchants to make money, and many distributors are complaining and confused. It turns out that just as phones are divided into Apple and non-Apple, liquor merchants are also divided into Moutai and non-Moutai? According to a distributor in Beijing who primarily deals with Moutai, driven by Moutai liquor, the profit margins for Moutai's general distribution products are also relatively high. "Now product profit margins are declining, and personnel costs are rising. We didn't make money last year," a baijiu distributor in Jiangxi who represents Site Liquor and Longjiang Jiayuan told reporters. "Moutai distributors don't worry about sales or profits, but regional liquors are still hard to sell. We still didn't make money last year, barely making a living. But I've been in this business for years, and it's hard to switch industries," a local liquor distributor in Hunan admitted. "I did Langjiu the year before last and Yanghe last year, and I still feel like I'm not making money..." sighed Tian Bai (pseudonym), a baijiu distributor in Jiangsu. "Famous brands require large capital and carry high risks. I choose products mainly priced for the public, positioned according to ordinary consumption levels. Ensuring quality ensures sales. Although the profit is thin, the sales volume is decent. The net profit increase is average," Wang Hao (pseudonym), a local liquor distributor in Shaanxi, told reporters. He said he no longer deals in famous brands. "Last year, those selling sauce-flavored liquor basically made money. For others, it's hard to say. Those selling low-end liquor had a tough time," said Zhou Tao (pseudonym), a liquor merchant in Quanzhou, Fujian, who represents multiple baijiu brands. A distributor of Baiyunbian in a certain region of Shaanxi told reporters that net profit increased by about 10% in 2017, mainly relying on the manufacturer's support for external markets. The effect was there but not obvious. Sun Min (pseudonym), a regional distributor of Yanghe, said in an interview: "Compared to the year before, last year Yanghe's Dream Blue series sold better, but the high-volume Sea Blue series was affected by the price increase." Why is it difficult for traditional small and medium-sized liquor merchants to make money? From recent data released by liquor chain enterprises and market research by the Liquor Industry Home, the performance of new channels is on the rise. 1919's performance forecast shows revenue of nearly 3.3 billion yuan in 2017, a year-on-year increase of 13.92%. In addition, influenced by internet channels like Tmall and JD.com, traditional channel merchants and small and medium-sized distributors are indeed having a hard time. Wan Xinggui, a senior baijiu expert in the industry, analyzed that there are multiple reasons why ordinary liquor merchants find it difficult to make money. First, distilleries are integrating traditional and new channels faster and more forcefully than merchants, especially traditional distributors, who are squeezed by the new retail model's impact on channel radius, greatly weakening their profits. Second, after factory prices rise, traditional distributors face profit compression from new channels and new retail models, and final prices do not show a significant increase, leading to smaller-than-expected profit margin growth. Based on the Liquor Industry Home team's research, large merchants and famous brand distributors are slightly better off because they have capital and understand management. However, small and medium-sized distributors face issues such as rising personnel and operational costs and declining sales after price increases, making it difficult to make money. What are the specific reasons? "The main reason is that while factory prices for many liquors have increased, actual selling prices are hard to raise; consumers need to pay for it. Although I also represent Moutai and made some money this year, it's thanks to years of persistence," said Jiang Jian (pseudonym), a baijiu merchant in Hefei, Anhui, in an interview. "Actually, during the peak season, we sell dozens of cases every day, almost a month's worth of sales in normal times. But consumers now know the prices, so the profit is thin. For a bottle of baijiu priced at dozens of yuan, we only make a gross profit of 5 yuan," a terminal merchant in Deyang told the Liquor Industry Home reporter. "We sold 1,200 cases of Wuliangye, 3,500 cases of Jiannanchun, and 800 cases of Moutai during the Spring Festival. Sales were good, but prices couldn't rise, profits were low, and we took on certain risks with the price increases, losing some non-core customers," said a distributor in Anhui. In fact, to boost sales during the Spring Festival, some famous brands and local liquors were discounted, which also affected profit growth for merchants. "The manufacturer raised prices, but our promotional costs increased, making it hard to make money..." said a baijiu distributor in Fujian. Some merchants also told reporters that liquor companies provided marketing training, but it was not targeted and not very practical in actual operations, so they remain confused about how to sell liquor and improve profit margins. Regarding the low profit margins of liquor merchants, Ma Fei, chairman of Jiudu Intelligence Group, pointed out in an interview: "Merchant profits are affected by multiple factors: First, prices are becoming transparent, and the era of huge profits for liquor channel merchants by relying on price differences is gradually fading; the era of thin profits has arrived. Second, consumer sovereignty is rising, and merchants need to interact with consumers, significantly increasing operational costs. While gross margins have not increased substantially, this directly sacrifices merchants' net profits. Third, manufacturers are gradually reducing marketing expenses, channel costs, and rebates, especially the cancellation of rebates by some distilleries, further squeezing merchant profits. Merchants can only expand markets desperately to gain meager profits." How can traditional distributors escape their predicament? A Hebei liquor merchant who achieved a 30% net profit growth in 2017 told reporters that his secret lies in frequent interaction with consumers, in which he invested heavily. This includes building groups and cultivating opinion leaders, which enhances consumers' sense of participation and existence. Over time, sales and profits gradually rise. "China currently has millions of liquor merchants, and a large amount of consumer communication still relies on them. Therefore, to maintain the ecological balance of the liquor industry, the profit distribution ratio at the merchant level needs to be further increased," Ma Fei analyzed. At this stage, improving merchant profits requires support from upstream manufacturers. First, upstream manufacturers should maintain the price system, reduce sources of price chaos such as cross-regional sales and counterfeits, and ensure reasonable profits for merchants. Second, they should continue brand and market investment to attract more consumers and expand the consumer base. Third, they should increase revenue and reduce expenses, reasonably control costs, strengthen market control, and make the market healthier. Fourth, they need to strengthen quality system construction, enhance product competitiveness, fundamentally win consumer mindshare, and cooperate with channel merchants in market and consumer communication. Wan Xinggui believes that for the sustainable and healthy development of the industry, the entire industry, including distilleries and merchants, should pay attention to this issue, think rationally together, and work together to find solutions. "Currently, distilleries still have anxieties. On one hand, traditional channels and consumption power are weakening, and the new marketing system has not been fully established. On the other hand, under new consumption trends, brand competition is intensifying, and the 'Matthew effect' is becoming increasingly evident. Therefore, in such market competition, hasty market actions are inevitable," Wan Xinggui analyzed. In 2017, famous liquor companies followed each other in raising prices, which was indeed not very rational and did not fully align with market consumption demand. Facing continuously rising costs due to market competition, distilleries need to appropriately and calmly slow down their development pace and communicate more with distributors. For traditional distributors, on one hand, they need to rethink the integrated relationship between manufacturers and merchants, shifting from past profit sharers to new profit co-creators, changing marketing concepts, and becoming comprehensive marketing service providers for brands in regional markets. On the other hand, they need to actively change their mindset, embrace new retail tools, deepen vertical channels, shorten channel radius, and enhance their comprehensive marketing capabilities in regional or niche consumer markets. In 2017, did you make money? How much did your net profit increase? What were your difficulties? Feel free to leave us a message in the comment section. Source: Liquor Industry Home (ID: jiuyejia360) -END-