Wahaha enters the baijiu industry, but what are its chances of success? In recent years, the 'sauce-flavor baijiu craze' has swept the entire baijiu industry, attracting numerous capital players into the sauce-flavor circle. Besides mergers and acquisitions among liquor companies, various non-liquor enterprises have also crossed over into the sector. Following Lenovo's acquisition of liquor companies such as Hunan Wuling and Shandong Kongfujia, beverage giant Wahaha has also entered the baijiu arena, launching its own product—'Zong Shuai Jia Jiu'. A 500ml bottle of sauce-flavor baijiu retails at 1388 yuan, even higher than Moutai 1935. From the bottle design, the logo is Wahaha's trademark, with the note 'Guizhou Moutai Town'. Currently, this liquor has not yet been released to the market. In fact, there is no trace of promotion online. After Wahaha launched Lingjiang Jiajiu in 2013 and then sold its 'son' to Shunping County Huajiang Commerce in 2017, this is Wahaha's another attempt in the baijiu field. What exactly is Wahaha up to? Bohu Finance will discuss three questions with you next: 1. Why is Wahaha making liquor? 2. Is baijiu a business with imagination? 3. What are Wahaha's chances of success in making liquor?
Beverage Giant Crosses Over to Sell Liquor The baijiu business can be said to be already monopolized by giants. In the high-end baijiu market, it is almost monopolized by sauce-flavor Guizhou Moutai and strong-flavor Wuliangye. The market price of Feitian Moutai has soared to 3000 yuan, and the market once experienced a situation of 'hard to find a sauce-flavor bottle'. This market 'darling' even became a belief in the stock market. In 2020, Moutai's market value stood above 2 trillion yuan, and Wuliangye's market value crossed the trillion threshold. So much so that it was joked that there are only two types of stocks in A-shares: baijiu and non-baijiu. China only needs two types of technology: strong-flavor technology and sauce-flavor technology. After fruitless diversification attempts, Wahaha's Chairman and General Manager Zong Qinghou saw the potential of baijiu. On November 5, 2013, Wahaha announced a total investment of 15 billion yuan (actually only 200 million yuan was invested) and launched its first sauce-flavor baijiu—Lingjiang Guojiu, marking Wahaha's official entry into the baijiu industry. Wahaha's chosen partner, Jinjiang Distillery, formerly known as Wang Family Distillery, has a brewing history of nearly a hundred years. According to data, Jinjiang Distillery covers an area of over 100 mu, employs more than 400 people, and has an annual production capacity of over 3,000 tons. For a time, the news of Wahaha making liquor spread across the internet. Wahaha spared no effort in promoting Lingjiang Guojiu: Zong Qinghou personally mobilized beverage distributors in the old system to sell liquor, introduced the 'joint sales system' model into the liquor sales field to recruit distributors to invest in Lingjiang Guojiu Company... (Wahaha announces entry into baijiu industry, source: Wahaha official website) Wahaha, at the height of its popularity, also received strong support from local governments in Guizhou and the Moutai Group. Renhuai City immediately announced plans to build a 2,000-mu 'Wahaha Baijiu Industrial Park', including brewing bases and liquor warehouses. It can be said the promotional lineup was very grand. At that time, Lingjiang Guojiu launched three new products with prices of 98 yuan, 198 yuan, and 298 yuan. From the price point, Lingjiang Guojiu targeted the low-end baijiu market. So how did Lingjiang Guojiu perform? It can be described as miserable. This highly anticipated national liquor suffered a Waterloo in its first year. In 2014, Lingjiang Guojiu's sales revenue was 78.3293 million yuan, with a net loss of 6.0043 million yuan. After a year of losses, the bubble of Lingjiang Guojiu was punctured, and the market calmed down. In 2015, Lingjiang Guojiu's revenue was only 32.6985 million yuan, more than halving from the previous year. After more than four years of struggle, the original Moutai Town Jinjiang Distillery was renamed Moutai Town Hualing Guojie Distillery, and was wholly owned by Shunping County Huajiang Commerce, with Moutai Town Hualing Guojie Distillery becoming a limited liability company. Wahaha's first attempt at making liquor ended in failure.
Is Selling Baijiu a Good Business? Following a similar path to Wahaha is the soy milk giant—V V Food & Beverage. In 2012, Guizhouchun, the 'boss' of Guizhou liquor, was acquired by V V Food & Beverage, but subsequently suffered consecutive losses, continuously dragging down the listed company's performance. Since 2016, it changed three chairmen in a row. After seven years of losses totaling 360 million yuan, V V Food & Beverage finally withdrew from Guizhouchun, and Jiangsu Zongyi Group took over. Speaking of this, a question worth pondering arises: Is selling baijiu a good business? Why are beverage brands entering the baijiu market? One reason is that beverage big products have aged. Internally, there is 2 trillion Moutai; externally, there is 1 trillion Coca-Cola. It is an indisputable fact that beverages produce bull stocks, but the accelerating differentiation of beverage stocks is also a trend that cannot be ignored. Nielsen once tracked 15,000 new FMCG products, and by the second year, only 50 were found in the market. This phenomenon of new products struggling to become hits is common in the industry. Even if they survive and become big products, their life cycles are significantly shortened. According to Uni-President Group, the popularity cycle of big products is only 1.5-2 years, making them more like fashion items. In this case, for beverage companies to grow, they cannot rely on a small fish turning into a big fish, but rather use more small products to replace big products, use horizontal expansion to compensate for vertical shrinkage, use the second curve to carry the first curve, and then use the third curve to carry the second curve... For example, the fundamental reason Nongfu Spring is favored by capital is that besides the big product of bottled water, it has successfully created multiple small products such as Nongfu Orchard, Vitamin Water, Tea π, Scream, and NFC juice. These small products together contribute 40% of its revenue. This not only makes Nongfu Spring's growth more sustainable but also shows the capital market its ability to expand categories. So, what about Wahaha? (Source: Internet) 'Wahaha is still selling old products: AD calcium milk, Nutri-Express, eight-treasure porridge, with not many new products,' a first-tier beverage distributor in North China said bluntly. Among Wahaha's big products, the youngest, Wowoy, was launched in 2006 and has been sold for 14 years. New products like KellyOne and Yicha have received mediocre responses. Compared to aging beverage big products, baijiu big products are still young and are core competitiveness. The most typical example is the duopoly of Moutai and Wuliangye. A single 53-degree Feitian Moutai accounts for 85% of Guizhou Moutai's revenue, and a single Puwu accounts for nearly 80% of Wuliangye's revenue. Jiannanchun's Shuijingjian accounts for 86% of its revenue. Niulanshan also relies on a single Bainiu'er. Even Luzhou Laojiao's Guojiao 1573 accounts for over 50% of its revenue. It can be said that the leaders in high, medium, and low-end baijiu all rely on a single big product. In recent years, almost all liquor companies have been doing one thing: shrinking production lines, clenching fists, and attacking a specific price segment. For example, in 2015, Luzhou Laojiao clarified its five big product strategy of Guojiao 1573, Cellar Age Liquor, Tequ, Touqu, and Erqu; in 2017, Langjiu, which had always pursued a 'wolf pack tactic', also clarified its four big product strategy of Qinghuanglang, Honghualang, Tequ, and Xiaolangjiu; in 2020, Yanghe also began to focus on M6+, attempting to build stronger brand power in the sub-high-end segment. Compared to the diversification of beverages, baijiu is increasingly moving towards an era of super big products. Another reason is that the sauce-flavor market is very large. According to Tianyancha data, as of September 30, 2020, there were 194,000 baijiu companies in China with business scope limited to baijiu and in operation, surviving, or moved-in status. From 2018 to 2019, the sauce-flavor baijiu exploded, with major distributors like Huazhi Liquor Store, Taishan Mingyin, and Goujiu.com entering the market. These major distributors have mature distribution channels and marketing teams, rich operational experience, often selling over a hundred tons annually, and have very high demand. As we know, Moutai accounts for about 85% of sauce-flavor liquor sales and 90% of the industry's profits. Judging from Moutai's current development trajectory, Moutai has not only become the only super brand in China's baijiu industry but also entered the fast track to trillion. After tasting the benefits of building a super brand, Moutai Town, as China's largest production base for sauce-flavor liquor, also intends to create a second nationally renowned sauce-flavor brand. Wahaha became the chosen one. Back then, at the launch of Wahaha's Lingjiang Guojiu, Luo Qifang, Deputy Secretary of the Zunyi Municipal Party Committee and Secretary of the Renhuai Municipal Party Committee, attended, and even Ji Keliang, Honorary Chairman of Moutai Distillery, came to support. It can be seen how grand the momentum was. However, the intention is not in the wine. Despite the halo, Wahaha played a good hand badly. From the cooperation with Jinjiang Distillery, it can be seen that Wahaha may have considered cost issues. Entry cost is low, but market threshold is high. Lingjiang Guojiu is a new brand, and from brand building to channel construction, everything needs to start from scratch. This process is quite long and uncertain. If viewed from investment returns, Wahaha's acquisition of a liquor company with a scale of several hundred million yuan would have a greater chance of success. Obviously, Wahaha was not fully prepared.
What Are Wahaha's Chances of Success in Making Liquor? On Wahaha's official website, Bohu Finance can no longer find any reports about making liquor, indicating that making liquor seems more like another trial. For Wahaha, limited investment in the baijiu business may be a realistic 'compromise'. On the one hand, while first-tier famous liquor companies like Moutai, Wuliangye, and Yanghe have started a 'weak recovery and strengthening' situation, the industry as a whole is still in a 'sluggish' state. Under such industry conditions, making large investments seems uneconomical. For example, media previously reported that 30% of small and medium-sized distilleries in Moutai Town have stopped production, and these halted capacities indicate market oversupply. On the other hand, from a product perspective, whether it is mid-to-high-end sauce-flavor baijiu or mid-to-low-end strong-flavor baijiu, Wahaha faces competition from numerous baijiu brands. Therefore, under the expectation of huge market investment, promoting an uncertain baijiu business at the expense of Wahaha's strong water and beverage main business profits and huge space is indeed 'untimely'. In Wahaha's traditional water and beverage business systems, it is also difficult to see a business model with large market-leading investment. But Bohu Finance believes that Wahaha's biggest test now is channel construction. Baijiu is different from ordinary FMCG products in terms of consumer groups, consumption occasions, and consumption methods. Wahaha's marketing channels and methods are also very different from the baijiu industry. For Wahaha's traditional distributors, the existing marketing methods and channels do not have advantages in front of baijiu. Selling baijiu is a new project that requires reconstruction, and this is the key to whether Wahaha can succeed in selling baijiu. This time, Wahaha's Zong Shuai Jia Jiu is priced at over a thousand yuan, undoubtedly targeting the mid-to-high-end market. (Zong Shuai Jia Jiu, source: Jinjiang Distillery official WeChat) But 80% of Wahaha's sales channels are low-end tobacco and alcohol stores and convenience stores that sell bottled water under 2 yuan, with only 20% being mid-range customers of office building barrel water. Channel resources cannot be shared, and the Zong Shuai Jia Jiu brand cannot integrate into the low-end mass market. Previously, Wahaha's high-end oat milk brand experienced such pain. In Wahaha's main channels—third and fourth-tier cities—consumers could not accept it. 'There's no way. Many products are like this: developed for high-end, but mismatched with sales channels.' Now, the low-end baijiu market is occupied by Jiang Xiaobai and Niulanshan, and the high-end market is occupied by Moutai and Wuliangye. Compared to Lingjiang Jiajiu, this Zong Shuai Jia Jiu seems to have no new changes, looking more like new wine in an old bottle. From Wahaha's series of diversification moves, selling liquor is undoubtedly a test. In recent years, Wahaha, whose main business growth has hit a bottleneck, has been exploring diversification. In traditional fields, Wahaha has entered profitable industries one by one, from children's clothing to milk powder, then to commercial real estate, and then to baijiu. Later, Wahaha turned to chasing trends like intelligent robots and new energy vehicles. However, 'loud thunder, little rain', most projects were abandoned halfway and came to nothing. From the current perspective, in the beverage field, Wahaha has established a strong brand endorsement, but in the baijiu field, it is still a newborn calf. How far can it go with a bottle of Zong Shuai Jia Jiu priced at 1388 yuan? Source: Bohu Finance (ID: bohuFN) Reference source: [Understand Finance] Beverage big products have aged, baijiu big products are still young *The cover image and accompanying images in the article are copyrighted by their respective owners. If the copyright owner believes that their work should not be browsed or used for free, please contact us promptly, and this platform will correct it immediately. Are you 'watching' me?