A few days ago, Yanjing Beer's chairman, Zhao Xiaodong, became a 'black swan' event. Will Yanjing Beer's fate be completely changed because of the chairman's incident? I don't think so. Although this kind of event is certainly not good news for Yanjing Beer, the development trajectory of a large enterprise will not undergo fundamental changes due to one or two sudden accidents. Today, I'd like to share some of my personal views: where is Yanjing Beer's development trajectory heading, and what does its future hold? -01- The Rise and Fall of Yanjing Beer Yanjing Beer was established in 1980 and is the only one among the top five domestic beer giants without foreign capital background. Over its 40-year development history, it has grown from a small enterprise with an annual output of only 8,000 tons to a super-large beer aircraft carrier with an annual output of 5 million tons. In 1997, Yanjing Beer was listed on the Shenzhen Stock Exchange, making it one of the earlier enterprises to enter the capital market in China's liquor industry, even earlier than Kweichow Moutai, which was listed on the A-share market in 2001. Because the domestic beer industry developed relatively late, compared with international large beer groups, Yanjing Beer can be said to have skipped over 100 years of development history. In 1989, Yanjing Beer broke the planned economy monopoly sales model of state-owned tobacco and liquor companies, established its own sales network, and developed market-oriented sales. Soon after, the brand's market share in Beijing reached 85%, and it surpassed Tsingtao Beer in production and sales, enjoying a period of great glory. It became one of the top five domestic beer companies, standing alongside brands like China Resources Snow, Tsingtao Beer, and AB InBev in the industry's first tier. In its early days, Yanjing Beer had a good market awareness and accurate product positioning, coupled with the 'hutong tactic' that established channel advantages, rational pricing strategies, and steady expansion strategies. These five reasons allowed it to move from the entrepreneurial stage to a growth stage, making Yanjing Beer the market hegemon at that time. Yanjing Beer's most glorious year was undoubtedly 2008. As the host beer brand, Yanjing secured the exclusive category sponsorship for the Beijing Olympics. In 2008, Yanjing Beer achieved a net profit of 541 million yuan, and maintained high-speed growth for several years thereafter, until net profit reached a historical high of 917 million yuan in 2011, and revenue peaked at 13.748 billion yuan in 2013. Unfortunately, with the entry of foreign brands, the beer industry entered a fiercely competitive stage, and Yanjing Beer gradually fell behind in this competition, with performance declining continuously for several years. As early as 1997, when Yanjing Beer was listed, its net profit had already reached 187 million yuan, but by 2017, Yanjing Beer's net profit was only 161 million yuan. After 20 years of development, Yanjing Beer had returned to its starting point. Financial report data shows that in 2017, Yanjing Beer achieved operating revenue of 11.196 billion yuan, a decrease of 3.26% compared with 2016; net profit was 161 million yuan, a decrease of 48.30% compared with 2016, nearly halved. In the following 2018 and 2019, Yanjing Beer's performance improved slightly, and profitability increased, but it still has a long way to go to return to its peak. Yanjing Beer was once brilliant and ranked among the top in the industry. Why has it come to the point where it needs to turn around against the odds? -02- What Did Yanjing Miss in the Past Decade? The turning point undoubtedly occurred about 10 years ago. At that time, the market structure of domestic Chinese beer could be described as a three-way split among Yanjing, Tsingtao, and Snow. At the critical juncture of industry consolidation, Tsingtao and Snow both had foreign capital support, actively merged and acquired, and vigorously integrated the market; in contrast, Yanjing Beer actually also actively negotiated with foreign capital and was aggressive in many regional markets. So why did Snow and Tsingtao eventually stand out, and why did Yanjing lose? The biggest problem was that Yanjing Beer made strategic mistakes at that time. When the oligopolistic pattern of the industry was initially emerging, major breweries began to acquire regional breweries to quickly expand market share. How did they do it? During rapid development, Snow acquired multiple brands such as Lanjian, Jinwei, Shengquan, Longjin, and Luoyanggong, and then carried out market swaps. Using these brands' channels to vigorously promote Snow's entry, the acquired brands were controlled in production, products were no longer upgraded, and communication resources were fully tilted toward the main brand Snow, taking several years to complete the replacement of these brands with Snow. In contrast, Yanjing Beer's three sub-brands, Huiquan, Liquan, and Xuelu, are still being operated with focus in their respective regions, adhering to the '1+3' brand strategy. In my view, regardless of how this strategy is performing, it clearly cannot achieve centralized integration of brand value. For the integration of new markets, doing swaps will inevitably have some difficulty, and doing old brands will undoubtedly be easier. But in today's beer market, the oligopolistic pattern is so obvious. From a global perspective, except for German beer, market traffic is basically concentrating toward the top. In this situation, developing one or two brands, achieving high concentration of brand value and resources, and breaking through from the top is undoubtedly the better path. Yanjing Beer seems unable to step out of this 'comfort zone' and chose the easier approach. Now, can you still see those brands acquired by Snow? It is precisely because Snow incorporated the market resources of those former regional famous liquors into itself, achieving centralized use of brand value and resources, and successfully created the super single product 'Brave the World' (勇闯天涯), which led to today's 'giant'. Yanjing Beer has undoubtedly been left behind in this regard. In addition, there is another point that puzzles me. Yanjing Beer once held the market firmly in its hands, with many cities and provinces having a market share of over 70%. Even strong competitors like Tsingtao and Snow found it difficult to attack Yanjing's positions and complained bitterly. "Don't look at today's domestic beer market leader Snow. Around 2008, Yanjing was very aggressive, causing Snow and Tsingtao to complain bitterly in Guangxi, Inner Mongolia, Guizhou, and other provinces, with market share in some places exceeding 70%," said an old market hand. However, for some reason, Yanjing Beer, which was once fierce in market tactics, suddenly disappeared overnight. This invincible general suddenly began to practice a 'iron barrel formation' (defensive strategy), and its market strategy became conservative. At that time, Snow Beer could be described as 'cheap as water'; if consumers didn't drink it, they gave it away, attacking at all costs. As a result, consumers got used to Snow and no longer saw other brands. Yanjing's sudden conservative strategy undoubtedly buried the momentum accumulated before 2013 and also caused Yanjing Beer to fall out of the first camp with Tsingtao and Snow during the new round of industry consolidation. -03- Corporate Transformation Continues, Foundation Not Yet Shaken! But looking at the past two years, Yanjing Beer has already undergone tremendous changes, which is also the reason for the performance recovery in 2018 and 2019. Although the first half of 2020 saw a decline in performance due to the impact of the epidemic, judging from some of Yanjing Beer's changes during the epidemic, Yanjing Beer may not be without opportunities to regain its glory; perhaps it's just a matter of time. What are Yanjing Beer's changes? Let's not rush to say. First, let's look at some industry evaluations after Yanjing Beer's performance decline: conservative and passive, insufficient market-oriented transformation and innovation awareness. Now the beer industry is a high-end market-oriented industry, and Yanjing Beer's brand positioning is mid-to-low-end, so it's not easy to make a comeback. However, I see today's Yanjing Beer is not entirely like that; it is also actively making some changes. The current consumption trend is upgrading on one hand and differentiation on the other. While more people are consuming high-end, high-priced beer products, the consumer group for affordable, good-quality beer is actually larger. Just like the baijiu industry, Moutai can keep raising prices and still be in short supply, but affordable Niulanshan Erguotou and Bofen are also doing well. Yanjing Beer does not lack the ability to incubate high-end products. Products like Yanjing Bajing cultural and creative products, Yanjing U8, Yanjing 7-Day Fresh, and other high-end series have all received good market response. From signing popular young idol Wang Yibo as brand spokesperson, to launching Yanjing Bajing new products via online live streaming, from changing brand packaging to launching youthful new products, these are a series of brand actions by Yanjing Beer to continuously try to integrate into young consumer groups. Of course, transformation is one thing, but truly achieving a comeback is not easy. Some industry insiders believe that Yanjing Beer has been making efforts in mid-to-high-end products in recent years, and trying to enhance brand youthfulness through product differentiation, including various sales model reforms such as customized liquor. However, the trend of beer consumption upgrading in China is obvious and shows fragmentation. Under this trend, Yanjing Beer's overall brand value perception still lags behind Tsingtao and Snow, lacking high-quality representative products, so the progress has been relatively slow. In any case, Yanjing Beer is already undergoing deep brand transformation, committed to achieving the goal of rejuvenating the old national brand, and striving to become the most resounding national brand in China's beer field. At least for now, Yanjing Beer's strategic direction is not a big problem. From the capital market perspective, Yanjing Beer is still a member of the industry's CR5, and a change in senior management is unlikely to shake the foundation of Yanjing Beer as a large state-owned enterprise. Moreover, national team funds such as China Securities Finance Corporation, Central Huijin Investment, and the National Social Security Fund still hold heavy positions in Yanjing Beer. Unless these powerful funds are fools, I don't think Yanjing Beer's fundamentals will be shaken. Currently, Yanjing Beer is still in the industry's top tier. According to financial report data, Yanjing Beer's current asset-liability ratio is 28.97%, less than 30%. In addition, monetary funds reached 3.994 billion yuan, indicating good cash flow and very stable financial condition. From this perspective, Yanjing Beer's situation is actually not as bad as widely believed, and Zhao Xiaodong's incident may just result in a change of chairman. I reiterate that I always believe a change in senior management will not shake the foundation of a large enterprise. After Moutai's Yuan Renguo incident, did Moutai have any major problems? On the contrary, Moutai subsequently repeatedly broke industry records and rose strongly to the top, and Moutai's successors have rarely had negative news. From this perspective, this incident is actually a positive for Yanjing Beer's overall corporate culture. -04- Brand Value Remains, Can It Emerge from the Fog? If the impact of this incident is really not as serious as widely rumored, can Yanjing Beer rebound against the trend and return to its peak? And what does it rely on? Whether it can return to its peak is hard to say at present; it may not be easy, but it should not sink into silence. The reason I believe Yanjing Beer will not sink into silence is that Yanjing Beer's own heritage remains. What is the heritage of this old state-owned enterprise? It is brand value! World Brand Lab released the 2020 (17th) "China's 500 Most Valuable Brands" ranking in Beijing, and Yanjing Beer and its sub-brands had a brand value of 193.721 billion yuan. Continuously strengthening brand value is the true hard power of a large enterprise. Yanjing Beer has made indelible contributions to the development of China's beer industry and is also a lasting imprint for consumers. Consumer awareness and trust are the most precious wealth of a company. Perhaps in the past, consumers' impression of it was 'outdated' or 'unoriginal', but definitely not 'untrustworthy'. This is one of the important factors for Yanjing Beer's potential resurgence. Brand core value is a key part of a company's brand assets. It will determine whether consumers can clearly understand the company's brand, distinguish the value between brands, and easily remember the benefit values and personalized services that the brand provides. If brand value remains, it can help enterprises enhance consumer awareness, trust, satisfaction, liking, and even love for the brand's products. This is the importance of brand building and the power that brand brings. Niulanshan was able to overtake Hongxing and become one of the symbols of Beijing culture, so Yanjing Beer may not be without opportunities. It depends on whether Yanjing Beer can truly utilize its key assets in the coming period, continuously strengthen them, and ultimately achieve its goals. After all, the oligopolistic pattern in the beer market is becoming increasingly obvious, and China has become the world's largest beer market, so the largest beer enterprise will inevitably be born in the Chinese market. Under such a pattern, Yanjing Beer, as one of the current leading domestic beer brands, will definitely show performance in the next 5-10 years. As for whether it can return to its peak, only time will tell.