In China's consumer narrative, baijiu is a special presence, even a 'barometer' of the consumer sector. Since 2016, baijiu has been the most classic case of consumption upgrading. In terms of production, baijiu output peaked in 2016 and has declined almost every year since, with the substantial increase in industry profits mainly coming from the consumption upgrading of mid-to-high-end baijiu. Similar structural upgrading stories have been repeatedly played out in different consumer sectors. This year, new changes have occurred in the baijiu industry. Since the beginning of the year, Moutai's stock price has seen a slight decline of 2%, while Shunxin Agriculture, the parent company of Niulanshan, saw a slight increase of 1%. However, other mid-range baijiu brands priced between 100 and 1,000 yuan have seen stock price drops of 10% to 40%. There is an unwritten rule in the A-share market: a stock may rise incorrectly, but it never falls incorrectly. The reason for the decline in mid-range baijiu stocks is precisely the sluggish performance. In the first quarter, Moutai and baijiu companies priced below 100 yuan saw relatively stable year-on-year revenue growth. In contrast, mid-range baijiu brands either saw a significant slowdown in revenue growth or negative growth. For example, Shede's revenue growth fell from 83.3% in the same period last year to 7.3% in the first quarter of this year. Shuijingfang's revenue growth was 14.1% last year, but in the first quarter of this year, its revenue declined by 40% year-on-year. More troublesome than the slowdown in revenue growth is the emerging inventory problem for mid-range baijiu. Data shows that the inventory turnover days for most mid-range baijiu brands increased by more than one month, with Shede increasing by 56 days and Gujing Gongjiu by 45 days. In contrast, Moutai, positioned as high-end, saw its inventory turnover days increase by only 10 days. Shunxin Agriculture, known for its cost-effectiveness, saw its inventory turnover days increase by 6 days. It seems that the consumption upgrading story for mid-range baijiu is about to collapse. This article holds the following views: 1. The bubble of false prosperity in mid-range baijiu has been punctured. In the past few years, the high growth of mid-range baijiu companies was largely due to distributors 'hoarding' inventory. A baijiu distributor revealed that the current industry's unopened inventory is worth at least 300 billion yuan, equivalent to half of the total retail sales in 2021. Now, the inventory turnover days for mid-range baijiu have surged by a month, and some distributors have withdrawn from the network, indicating that terminal sales are not optimistic. 2. The logic of mid-range baijiu premiumization has been broken. In the past few years, Moutai's price increases left room for mid-range brands to raise prices, but with the weak economic recovery, declining consumer confidence, and capacity overflow after high-end baijiu expansion, the logic of price increases and upgrades for mid-range baijiu has been hindered, and almost all mid-range baijiu have experienced price inversion. 3. The baijiu industry is ushering in a 'dumbbell' pattern. In the future, the high-end and mass-market baijiu segments (below 100 yuan) are expected to develop well, while the mid-range market will gradually split toward both ends. Currently, mid-range baijiu manufacturers are more aggressively attacking the thousand-yuan high-end market while also expanding products around 100 yuan. Mid-range baijiu is not selling well Changes in the baijiu industry first occurred in mid-range brands. According to a set of baijiu consumption data revealed at the Huizhou Liquor Forum, in the month after the Spring Festival, terminal shipments in the 300-800 yuan price range grew the slowest. Among them, shipments of baijiu priced 500-800 yuan decreased by 20% year-on-year, while shipments of baijiu priced 300-500 yuan increased by 9% year-on-year, far below the performance of other price ranges. In comparison, during the same period, shipments of baijiu priced below 100 yuan increased by 69% year-on-year, 100-300 yuan increased by 12%, and high-end baijiu such as Moutai increased by 12%. Looking at the entire first quarter, mid-range baijiu brands in the 300-1000 yuan range also experienced a slowdown in growth. The most severe was Shuijingfang, whose first-quarter revenue fell nearly 40% year-on-year, compared to 14.1% growth in the same period last year. Shede's revenue growth also declined sharply, from 83.3% in the same period last year to 7.3% in the first quarter of this year. In contrast, Moutai's revenue growth was basically flat year-on-year. Shunxin Agriculture's growth even turned from negative to positive. More severe than the decline in revenue growth is the increase in inventory turnover days, with most mid-range baijiu brands seeing an increase of more than one month. In contrast, Moutai's inventory turnover days increased by only 10 days. The surge in inventory turnover days for mid-range baijiu indicates that the bubble is about to burst. In the past few years, a large part of the high growth of mid-range baijiu companies was achieved through distributors 'hoarding' inventory. A baijiu distributor once revealed that the current industry's unopened inventory is worth at least 300 billion yuan, equivalent to half of the total retail sales in 2021. These goods, which were not actually consumed, fueled the false prosperity of the baijiu boom cycle. Now, the sharp increase in inventory turnover days for mid-range baijiu indicates that distributors are facing pressure in terminal sales and need to first consume existing inventory before taking new goods from the distillery. From the actions of distributors, they are not optimistic about mid-range baijiu sales. Some mid-range baijiu brands have seen distributors withdraw from the network, such as at the end of 2022, when Shede's distributor network saw a net decrease of 94 distributors. Behind the withdrawal of distributors is not only the inventory cycle issue of mid-range baijiu, but also a precursor to changes in industry logic. The premiumization logic has been broken After 2017, baijiu industry sales volume continued to decline, but the industry scale did not fall but rose, from 536.4 billion yuan to 662.7 billion yuan. The high-end upgrading of the baijiu industry was the main reason for the industry's past growth. In this process, mid-range baijiu benefited the most. The reason is not hard to understand: Moutai's price increases left room for mid-range baijiu to raise prices, and mid-range baijiu did not have the capacity issues of high-end baijiu, making it easy to achieve the logic of simultaneous volume and price increases. From 2018 to 2021, mid-range brands such as Shede and Shanxi Fenjiu achieved revenue growth rates of 20% to 80%. But now, the logic of price increases brought by the premiumization of mid-range baijiu has been broken. The widespread price inversion in mid-range baijiu is a manifestation of this broken logic. For example, Gujing Gongjiu's 52-degree 500ml Year Original Pulp Gu20 has a suggested retail price of 1,299 yuan, but the terminal market price is between 550 and 700 yuan. Xijiu's flagship product Junpin Xijiu has a suggested retail price of 1,498 yuan per bottle, but terminal platform prices range from 860 to 1,000 yuan. The breaking of the premiumization logic for mid-range baijiu is due to multiple factors, including declining consumer spending power and product overflow on the supply side. From the demand side, the main consumer group for mid-range baijiu is the middle class. In this round of economic fluctuations, this group has been most affected, leading to the first squeeze on mid-range baijiu consumption. This is similar to the luxury goods logic. During economic downturns, sales of waist-level luxury brands like Burberry often suffer first. On the supply side, after the expansion of high-end baijiu, capacity has increased significantly. For example, even though Moutai's expansion plan is not yet complete, its capacity reached 56,000 tons in 2022. In the past few years, Moutai's capacity was over 30,000 tons. After nearly doubling capacity, Moutai's overflow capacity has also had a significant impact on mid-range brands. With capacity expansion, Moutai's product line has also begun to expand downward. In 2022, Moutai launched Moutai 1935, priced at 1,188 yuan per bottle. The launch of Moutai 1935 marked the filling of the blank in Moutai's thousand-yuan price band, which also negatively impacted mid-range brands' attempts to break into the thousand-yuan band. More importantly, Moutai's expansion has also given high-end baijiu greater motivation to clear inventory by lowering prices. In early June, the original box Moutai Feitian from 2016-2018 saw a drop of 40-50 yuan per bottle; in the zodiac series, Rabbit Moutai fell by 20 yuan per bottle; among other series, Da Yu Shui Jiu fell by 200 yuan per bottle. After the premiumization logic for mid-range baijiu was hindered, the baijiu industry will also see changes in market structure. The baijiu industry ushers in a 'dumbbell' pattern Judging from the performance growth trends of different brands in the first quarter of this year, Moutai's revenue growth in the high-end market was roughly flat year-on-year, while Shunxin Agriculture, the parent company of Niulanshan, positioned as mass-market, saw its revenue growth turn from negative to positive. In the month after the Spring Festival, baijiu priced below 100 yuan was the fastest-growing category in terms of revenue. However, most mid-range brands either slowed down or began to see negative growth in the first quarter. Changes in terminal sales data have also prompted baijiu companies to adjust their strategies. On the one hand, mid-range baijiu has begun to more aggressively attack the price band above 1,000 yuan. For example, Fenjiu's key task for distributors this year is to cultivate the market for Qinghua 30, priced in the thousand-yuan band. In the case of insufficient base liquor capacity, Fenjiu supports the production of Qinghua 30 by reducing sales of another major product, Zhuyeqing. While mid-range baijiu attempts to enter the high-end market with 'high prices and high profits,' mid-range baijiu has also begun to focus on the mass market below 100 yuan. In the past year, products in the 100-yuan price band have suddenly expanded. For example, Fenjiu launched Fenjiu·Tribute Edition, Luzhou Laojiao launched Black Cap, and Yanghe launched Yanghe Daqu, all priced around 100 yuan. In fact, the differentiation of the baijiu market from the middle to both ends also reflects the trend of the entire consumer market. Looking back, after stable economic development, the consumer market will show a trend of stratification. For example, after Japan's economic growth slowed, the average salary of office workers declined, leading to a widening wealth gap and the acceleration of the middle class splitting toward both ends, forming an 'M-shaped' society, which in turn caused consumption stratification. At this time, players who seized both ends of consumption achieved counter-trend growth, such as Kao in the high-end market and Uniqlo in the high-cost-performance market. A similar trend has also emerged in China. This year, China's luxury market exceeded expectations, and luxury giants have increased their investment in China. At the same time, Pinduoduo, a high-cost-performance e-commerce platform, has far exceeded expectations. From baijiu to the entire consumer market, their fortune and misfortune are always tied to the macro environment of their era. Following macro changes and determining development trajectories is both the optimal solution for enterprise development and the fate of enterprises.