The oligopolistic trend has accelerated during the pandemic, with dominant players Moutai and Wuliangye continuously expanding their market share through channel and brand penetration.
How is the baijiu industry faring after the pandemic? Let's first look at a set of Q1 2020 data:
- Moutai's revenue reached 25.298 billion yuan, a year-on-year increase of 12.54%; net profit attributable to shareholders was 13.094 billion yuan, up 16.69% year-on-year.
- Wuliangye's revenue was 20.238 billion yuan, up 15.05% year-on-year; net profit attributable to shareholders was 7.704 billion yuan, up 18.98% year-on-year.
The performance of the two industry leaders exceeded market expectations, injecting a shot in the arm for the entire baijiu sector.
Subsequently, the China Merchants CSI Baijiu Index climbed to 0.973, finally returning to the level of six months ago.
Unfortunately, Moutai and Wuliangye cannot represent the entire market. In Q1 2020 results, 16 of the 19 listed companies reported negative figures.
▨ Statistics on listed liquor companies' performance in Q1 2020, Image/e Company
The third-ranked Yanghe's revenue was less than 10 billion yuan, down 14.89% year-on-year; net profit attributable to shareholders was 4.002 billion yuan, down 0.46% year-on-year.
At the bottom, Jinzhongzi's net profit fell by 391.83%, and Qinghai Huzhu Barley Wine's net profit dropped by 109.25%.
According to industry media citing informed sources, "A well-known distillery may be on the verge of collapse recently."
Behind the performance recovery of Moutai and Wuliangye lies the bleakest New Year market opening for the baijiu industry.
-01- The Oligopolistic Advantages of Moutai and Wuliangye Emerge
Data shows that the pandemic caused a sharp 15% decline in liquor consumption demand. The revenue and net profit of listed yellow wine and wine companies were nearly wiped out, and the baijiu industry suffered losses of up to 150 billion yuan.
Under such circumstances, why did Moutai and Wuliangye's performance stand out?
First, the oligopolistic harvest is evident.
Since the strong recovery in 2017, the market structure of the baijiu industry has become increasingly solidified.
According to China Business News, in 2018, the top three companies—Moutai, Wuliangye, and Yanghe—accounted for 26% of the industry's total revenue, an increase of nearly 7% from the previous year.
Correspondingly, the number of baijiu companies above designated size in 2018 decreased by 148 year-on-year, and 183 companies suffered losses.
This indicates that since 2018, China's baijiu industry has entered a new era of oligopoly.
David Wei of JIAYU Capital noted that the pandemic did not change the original consumption trends but accelerated them.
The oligopolistic trend has accelerated during the pandemic, with dominant players Moutai and Wuliangye continuously expanding their market share through channel and brand penetration.
Second, the psychological impact on consumers during the pandemic.
In February, Social Touch, a brand integration marketing company, released the "Post-Pandemic Marketing Trends and Brand Opportunities Analysis."
The report pointed out that from a consumption perspective, consumers in the post-pandemic era tend to respect science and facts, leading to a rise in rational consumption awareness and a focus on input-output ratios.
In this process, consumers tend to choose well-known brands.
For example, in the mobile phone sector, while the entire industry saw sales decline, Huawei maintained a slight growth of 1.4% in Q1, with revenue reaching 182.2 billion yuan.
In the snack food sector, the established brand Lai Yifen achieved Q1 revenue of 1.31 billion yuan, with a growth rate exceeding 10%.
In the baijiu industry, the high-profile brands are naturally Moutai and Wuliangye.
According to the "China Brand Influence Research Report (2019)," Moutai and Wuliangye ranked first and second in the liquor category, and their influence scores were the only ones exceeding 40 points in the industry.
▨ 2019 China Liquor Brand Influence, Image/100 People Forum
Third, and most importantly, the advance payment from distributors.
According to Jiemian News, the first-quarter revenue of famous liquor companies came from distributor payments made at the end of the previous year.
A distributor from Jiangsu said that Moutai distributors typically complete payments several quarters in advance. As for Wuliangye, it had already received distributor payments for Q1 2020 before the pandemic.
Due to the pandemic, other baijiu companies did not receive advance payments for Q1, and Q2 payments are usually completed at the end of March or early April.
This distributor even stated that Langjiu, Yanghe, and Gujing Gongjiu had not received much payment, partly due to cash flow difficulties among distributors and partly due to support policies from the liquor companies.
In this light, Moutai and Wuliangye's better-than-expected revenue was simply due to payments received before the pandemic.
To truly understand how these two brands fared during the pandemic, Q2 2020 data may be more reliable.
-02- Many Liquor Companies Suffer from Consumption Scenarios
Besides advance payments from distributors, Moutai and Wuliangye also have different consumption scenarios.
In daily baijiu consumption, the main scenarios are gifting and banquets.
In this process, the consumer and the user are basically separated, making it crucial how the liquor product influences the buyer's decision.
This is like Nao Baijin (a health supplement).
If Shi Yuzhu had sold it as a general health product, it would have quickly disappeared due to being "not worth it."
However, as a gift, where the payer is not the user, it becomes "great value" because a few hundred yuan can bring "face."
Second- and third-tier liquor companies do not have these advantages; they rely more on social gatherings, dinners, and banquets.
Companies like Swellfun and Gujing Gongjiu have also mentioned:
The social distancing and restrictions on gatherings and banquets caused by the pandemic have almost eliminated the social scenarios and gathering-based consumption that baijiu relies on most.
▨ Screenshot from Gujing Gongjiu's 2019 annual report
Without consumption scenarios, there is no consumption.
Unlike Chinese baijiu, foreign spirits saw significant growth during the pandemic.
According to market research firm Nielsen, in the week ending March 21, alcohol beverage sales in the U.S. rose by 55%.
Among them, spirits sales increased by 75%, wine by 66%, and beer by 42%.
Apart from the joke about "drinking to drown sorrows," it's more that these beverages have more diverse consumption scenarios.
Beyond dining and business entertainment, scenarios like home, outdoor, and even working from home can be places for consuming other alcoholic beverages.
However, Li Qiang, publisher of New Food magazine, once estimated that 99% of baijiu consumption occurs at the dining table.
Amid the decline of many baijiu companies, Shanxi Fenjiu performed exceptionally, with growth in both revenue and net profit.
Although most of the profit growth came from the acquisition of 10% stakes in Fenjiu Sales Company and Zhu Yeqing Marketing Company before the New Year, the scenario again illustrates the point.
Industry insiders analyzed that Shanxi Fenjiu's Bofen series is a "bare bottle" liquor mainly for self-drinking, so it was less affected by the pandemic.
-03- Is Cloud Drinking a Self-Congratulatory Scenario?
Breaking out of a single scenario is likely the aspiration of all baijiu companies.
On the evening of January 27, early in the pandemic, Jiang Xiaobai founder Tao Shiquan had a sudden idea and organized a "cloud drinking" session on his Moments.
This drinking session can be said to have kicked off the trend of cloud drinking during the pandemic.
Langjiu launched "cloud drinking bureaus" in key markets, with over 500,000 participants within 24 hours of going live.
Changyu launched a cloud drinking contest, where city managers, distributors, group-buying alliances, and consumer leaders could initiate cloud drinking sessions.
Lidu and Jingzhi Liquor, among others, targeted the pain points of homebound consumers by launching cloud stores online and contactless delivery offline.
▨ Cloud drinking, Image/Network Material
But can such new scenarios really drive consumption?
Tao Shiquan, who started this game, admitted:
It is still difficult to generate too many direct links related to sales or operations through "cloud drinking."
It is more about conveying a diversified consumption habit to consumers.
In a report by Business Review, they defined the current liquor consumption scenarios as "Brother":
- Bar
- Restaurant
- Office
- Travel (outdoor leisure)
- Home
- Finally, it comes down to the person (er).
These scenarios are more prominent among younger consumer groups.
It is precisely because baijiu's scenario tone does not match that the alcohol consumption share of consumers under 30 in mainland China is:
Beer 52%, wine 13%, premixed drinks 11%, and baijiu only 8%.
The single consumption scenario directly loses a large target consumer group.
Expanding consumption scenarios to "Brother" might be an opportunity for Chinese baijiu in the post-pandemic era—
Whether it's surviving in a declining market or breaking through the oligopoly of Moutai and Wuliangye.
-04- Opportunities for Liquor Companies in Scenario Expansion
In the seemingly class-solidified traditional baijiu industry, what opportunities remain for small and medium-sized enterprises under the threat of oligopolies?
1. Brand crossover catering to diverse scenarios
In December 2017, Jack Ma left the dinner after the Wuzhen Summit and went out alone for a drink.
That was at Shanghai Xingye Taikoo Hui, where Starbucks opened its first store in mainland China to offer alcoholic beverages.
Ma was the first guest to visit and took a photo with Starbucks founder Howard Schultz, a "cute height difference" shot.
The following year on Teacher's Day, Ma retired. When discussing his retirement plans, he said he might go into liquor making in the future.
At the end of that year, Coca-Cola Chairman Muhtar Kent also announced his retirement. Before retiring, he sold a can of "Lemon-do" Chu-Hi in Japan.
That was the first can of alcoholic beverage sold by Coca-Cola in its 125-year history.
At this point, we can discern three types of crossover:
Starbucks' channel crossover, Coca-Cola's brand crossover, and Jack Ma's IP crossover.
▨ Alcoholic beverages sold by Coca-Cola in Japan, Image/Shangyi Fengyun Bang
2. Diversified scenarios directly lead to category diversification
A single product cannot conquer all scenarios.
A survey by China Youth Daily showed that 54.6% of young people enjoy living alone.
But in scenarios like home, outdoor, or romantic restaurants for one or two people, Chinese baijiu may be weaker compared to fruit wine.
According to the "2014-2018 China Fruit Wine Research Report," the annual growth rate of non-wine fruit wine sales in China is 15%, and the scale of the non-wine fruit wine industry exceeded 22 billion yuan in 2018.
Among them, plum wine has a deep cultural foundation and cultivation history in China, making it the most qualified to build a benchmark brand among many fruit wine categories.
In neighboring Japan, the plum wine market has exceeded 100 billion yuan, and the proportion of female drinkers has increased from 52.6% to 72.9%, providing sufficient reference for domestic entrepreneurs.
Such cases are not limited to young groups; in the solo drinking scenarios of middle-aged and elderly people, the development of healthy liquor categories is also becoming more promising.
Shanxi Fenjiu has accelerated the strategic layout of Zhu Yeqing health liquor. Zhu Yeqing, together with Fenjiu, Xinghuacun, and personalized series, forms the company's four-brand matrix.
It is understood that Zhu Yeqing does not rule out a separate listing.
3. Opportunities for the comprehensive de-meal-ification of liquor consumption
The trend of drinking gradually moving away from meal accompaniment and achieving de-meal-ification is becoming more evident.
Jiangxi's Lidu Liquor provides a better example. It focuses on differentiated consumer needs, develops tourism marketing, and launched a consumer experience product—distiller's grain popsicles.
According to rough statistics, over the past three years, more than 100,000 of these popsicles have been consumed.
Last year, Wuliangye also reported making liquor ice cream. Will imaginative products like baijiu lollipops and baijiu lozenges attract more consumers?
This is an incremental space that is far from reaching its ceiling.
Source: New Business Reference (ID: xinshangye2016)
Tips will be paid 400-2000 yuan once the tip is adopted.