---
title: "Consumer Recovery Begins with Baijiu"
description: "As pandemic prevention policies are gradually relaxed, the market anticipates a recovery in the consumer sector, making the food and beverage industry the brightest star in the market this week. The baijiu sector rose 6.94% in the past week and 19.30% in the past month, outperforming the broader market, with mid-range brands like Kouzijiao, Golden Seed, and Shunxin Agriculture leading the gains. In terms of capital inflows, Wuliangye saw net inflows of 2.252 billion yuan in a week, ranking first, while Kweichow Moutai, Shanxi Fenjiu, and Laobaigan also received significant northbound capital increases. Baijiu..."
author: "小卢鱼"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2022-12-27"
language: "en"
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# Consumer Recovery Begins with Baijiu

> As pandemic prevention policies are gradually relaxed, the market anticipates a recovery in the consumer sector, making the food and beverage industry the brightest star in the market this week. The baijiu sector rose 6.94% in the past week and 19.30% in the past month, outperforming the broader market, with mid-range brands like Kouzijiao, Golden Seed, and Shunxin Agriculture leading the gains. In terms of capital inflows, Wuliangye saw net inflows of 2.252 billion yuan in a week, ranking first, while Kweichow Moutai, Shanxi Fenjiu, and Laobaigan also received significant northbound capital increases. Baijiu...

As pandemic prevention policies are gradually relaxed, the market anticipates a recovery in the consumer sector, making the food and beverage industry the brightest star in the market this week. The baijiu sector rose 6.94% in the past week and 19.30% in the past month, outperforming the broader market, with mid-range brands like Kouzijiao, Golden Seed, and Shunxin Agriculture leading the gains. In terms of capital inflows, Wuliangye saw net inflows of 2.252 billion yuan in a week, ranking first, while Kweichow Moutai, Shanxi Fenjiu, and Laobaigan also received significant northbound capital increases. Baijiu Index Performance (October 2022 to present) Prior to this, the baijiu industry had been under relatively pessimistic market expectations throughout the year. Especially after July, affected by multiple factors such as high valuation pullbacks, recurring pandemic outbreaks, and foreign capital outflows, the baijiu sector had been fluctuating downward. However, recently, the sector has shown clear signs of recovery. The reason why capital is generally betting on baijiu is not hard to understand: pandemic control expectations are changing, and the Spring Festival peak season is approaching. But in this rebound, the stock performance of baijiu brands has been clearly differentiated, indicating that the market has differentiated judgments and investment choices for different baijiu brands.
**Low-end Baijiu: Breaking Through in Lower-Tier Markets**
> Branding of baijiu in lower-tier markets.
**The baijiu market is relatively fragmented, with low concentration and extremely wide geographical coverage. The lower the city tier, the higher the preference for baijiu.** Foreign varieties such as red wine and whiskey usually only occupy a certain market share in large cities. **In recent years, there has also been a trend of branding baijiu in lower-tier markets, which is actually a form of consumption upgrade.** Part of the reason is that the forecast growth rate of China's baijiu market size in the next few years is only about 10%. In this situation, competition among enterprises will become more intense, and one competitive strategy is to go the lower-tier route. Another reason is that under the development path of common prosperity, consumer goods like baijiu must also become more "people-friendly."
A clear example is that, according to China Alcoholic Drinks Association data, the market size of bottle liquor grew from 35.2 billion yuan in 2013 to 98.8 billion yuan in 2021, with a compound growth rate of about 14%; from 2022 to 2024, the average annual growth rate is expected to reach 16%, and the market size will exceed 150 billion yuan by 2024. **The process of branded baijiu going down to lower-tier markets has given some small and medium-sized enterprises the opportunity to establish brand positions, especially for low-end liquor brands priced below 100 yuan. This is a rare development opportunity.** Shunxin Agriculture (Niulanshan) is quite representative in the low-end liquor market. Although Niulanshan is a branded liquor, its price of over ten yuan per bottle is even lower than bulk liquor produced by small workshops, and it is easy to find in both large and small supermarkets and restaurants. While other regional baijiu brands are pursuing high-end positioning, Shunxin Agriculture has taken the opposite approach, with the sales revenue share of low-end liquor in its overall business continuing to increase. As a price for focusing on low-end liquor, Shunxin Agriculture's gross margin is not high, at 27.91% in the 2021 annual report.
On this basis, Shunxin Agriculture has also raised prices three times this year, citing rising raw material and transportation costs. **Its main product, Niulanshan Chenniang, has raised prices by 6 yuan per case across the board, which is expected to directly contribute incremental revenue and boost medium- and long-term performance and channel profits.** This year, Shunxin Agriculture also completely divested its loss-making real estate business, and the overall gross margin for the first three quarters rose to 30.82%. At the same time, it launched a new single product, "Jinbiao Chenniang," which received positive market feedback, sending a positive signal to the market. Therefore, many brokerages believe that Shunxin Agriculture's "darkest moment" has passed, and market expectations for subsequent growth have driven its stock price to continue rising, with a gain of 40.12% in the past month. Shunxin Agriculture Stock Performance (September 2022 to present) However, Jiangxiaobai, once a heavyweight in the low-end liquor market that had high hopes placed on it, has gradually faded away. Originally, Jiangxiaobai focused its marketing on young people in their twenties and thirties, with an initial price of 10 yuan per bottle. After becoming popular, it quickly doubled its price, but the market response was poor. This also indirectly shows that a major problem for low-end baijiu brands is the solidification of brand value. Once the market considers a brand low-end, it becomes difficult to raise prices and improve gross margins later.
**Regional Leaders: Main Drivers of the Rise**
> Leading liquor companies in regions like Jiangsu and Anhui have shown strong stock performance.
In recent years, many regional leading liquor companies have begun to enter the sub-premium liquor market. Local liquors in Shandong, Henan, Anhui, and other places have been particularly active, mostly attempting to launch new product series at higher prices and reducing the sales share of low-end liquor. **This is primarily because the consumer base for sub-premium liquor is large.** According to iiMedia Consulting data, 65.90% of China's baijiu consumers in 2021 were middle- and high-income people who prefer baijiu with better quality and brand.
Sub-premium baijiu is generally priced at 300-800 yuan, mainly used for business activities and banquets; mid-range baijiu is priced at 100-300 yuan, mainly for personal consumption, family banquets, and gatherings with friends and relatives. In such occasions full of social nuances, brand positioning and price are very important purchase reasons, and product premiums are inevitably high. **The generous single-product profits can help regional leading liquor companies accumulate the funds necessary for national expansion. In this fiercely competitive track where one either advances or retreats, sub-premium positioning can also be said to be an inevitable choice for these enterprises.** Moreover, with the growth of residents' income, high-end liquor brands have raised prices one after another, opening up the price ceiling for sub-premium liquor, making it natural to follow the leading brands in gradually raising prices. However, sub-premium positioning is not just about raising product prices; it also requires supporting marketing and promotion, recognized product quality, and some luck. Kouzijiao and Golden Seed, which started in Anhui, are relatively successful representatives of enterprises that have transformed to sub-premium liquor in the past two years. **Anhui Province has been relatively less affected by the negative impact of the pandemic, and the production and sales of Kouzijiao and Golden Seed have been relatively safe. As leading liquors in the Jiangsu-Anhui region, they have benefited significantly.**
On the other hand, Yilite, which is also in the sub-premium liquor camp, is located in Xinjiang, where the pandemic has been recurring and the situation is more severe. Its performance has been under significant pressure, and its national expansion has not gone smoothly, making it one of the few examples in this round of baijiu sector rally where the stock price fell instead of rising. In addition, Anhui is adjacent to Shanghai, Jiangsu, and other provinces with the most developed economies in the country. Its own GDP growth rate also ranks among the top ten in the country, and there is still room for improvement. This means that the sales radius of Kouzijiao and Golden Seed can fully cover several major provinces with the most active fixed investment and business activities in China. For sub-premium liquor brands whose main consumption scenario is banquets, this is undoubtedly a unique competitive advantage. **Especially in the increasingly relaxed pandemic prevention environment, restrictions on dine-in and banquets will be reduced, and sub-premium liquor is expected to see real sales growth.** With multiple favorable factors in the macro environment, Kouzijiao and Golden Seed have seen significant gains in this round of market movement. In the past month, Kouzijiao's stock price rose 29.54%, and Golden Seed's stock price rose 29.68%, both ranking at the forefront of the sector. It is worth noting that Golden Seed, as one of the four famous liquors in Anhui, has always lagged behind other listed Anhui liquor companies in profitability, with a gross margin of only 28.80% in 2021. In the first three quarters of 2022, Golden Seed's operating income increased by only 0.99% year-on-year, and its net profit excluding non-recurring items was a loss of approximately 154 million yuan.
**To improve its operations, Golden Seed has introduced strategic investment from China Resources, with senior executives from China Resources deeply involved in frontline operations, building an "online + offline" integrated marketing system.** Considering China Resources' channel advantages, in addition to benefiting Golden Seed's mid-to-high-end products, its mid-to-low-end products are also expected to quickly open up new prospects. Currently, Golden Seed's stock price can rise rapidly despite losses, demonstrating the capital market's confidence in the development and reform after China Resources' entry.
**High-end Big Brands: Weak Stock Performance**
> The capital market favors sub-premium and low-end liquor brands.
In China, high-end baijiu holds a special market position, especially ultra-high-end brands like Moutai, which firmly occupy the top choice for business gifts and social occasions. In 2021, just two high-end brands, Kweichow Moutai and Wuliangye, accounted for half of the baijiu consumer market. Since the typical consumers of high-end baijiu are mostly middle-level and above in politics and business, their consumption concept is "light on price, heavy on quality," and they pursue the brand culture and social circles behind the product. This has made the position of China's high-end liquor brands stable and less affected by economic downturns. **From financial report data, the sales of high-end liquor brands in 2022 have been stable with slight growth**, and the performance growth rate in the first half of the year was slightly higher than the annual plan, so these enterprises still have the capacity to maintain channels, improve pricing, and expand production capacity in the second half of the year.
**However, the performance growth has a limited effect on boosting the stock prices of high-end liquor brands.** In this round of market movement, the stock prices of companies such as Wuliangye, Luzhou Laojiao, Kweichow Moutai, and Shanxi Fenjiu rose briefly and then fell back, with gains already diverging from mid-to-low-end brands like Shunxin Agriculture, Kouzijiao, and Golden Seed. Taking Kweichow Moutai as an example, in the first three quarters of this year, it achieved operating revenue of 89.786 billion yuan, a year-on-year increase of 16.52%, with a net margin of 51.58% and a net profit attributable to the parent company increasing by 19.14% year-on-year, which can be considered impressive. In addition, Kweichow Moutai recently made two rare capital moves: an increase in holdings by major shareholders and its first special dividend. Such obvious gestures of goodwill to investors drove Kweichow Moutai's stock price up 5.90% on that day (November 28), but even so, the rise was not sustainable.
This is related to Kweichow Moutai's high market capitalization. In this weak market with stock funds competing, a market cap of 2 trillion yuan is likely to make Kweichow Moutai's stock price "affect the whole by a single move." **Moreover, in the past two years, investors have been questioning Kweichow Moutai's high valuation, and mid-level performance growth can no longer meet investors' high expectations.** Wuliangye has similar troubles. Although its market cap is only one-third of Kweichow Moutai's, its scale of 632.9 billion yuan is also a behemoth in the A-share market. Compared with the valuation levels of peers such as Kweichow Moutai, Shanxi Fenjiu, and Luzhou Laojiao, Wuliangye's current dynamic price-to-earnings ratio is about 23 times, relatively low. Perhaps for this reason, Wuliangye has become the top choice for a large amount of northbound capital buying. In general, although high-end liquor brands have strong performance stability and the ability to cycle through periods, their current valuations may still be on the high side. Moreover, compared with mid-to-low-end liquors, high-end liquors have a larger profit base and higher market cap, so their stock price elasticity is not as good as that of mid-to-low-end baijiu.
**Conclusion** Overall, in this baijiu market driven by consumer recovery, the capital market has reacted quickly and precisely, betting on the recovery of baijiu consumption in the post-pandemic era. In addition to the different performances within the baijiu sector described above, a key reason why capital has focused on baijiu stocks in the consumer sector is that baijiu still has the best financial data among all consumer goods—including gross margin, net margin, and a certain degree of growth. More importantly, as a traditional part of Chinese consumption, **baijiu consumption has remained stable despite various "blows," and in the foreseeable future, it will still grow at about 10% annually.** For specific strong brands, growth will be much greater than this figure. Due to its certain impact on consumer health, baijiu consumption has its "politically incorrect" side. But at the same time, alcohol also has the effect of relieving and releasing mental stress, which, in the context of slowing economic growth, has become a certain degree of rigid demand for more and more people. In an increasingly complex economic and social environment, people's demand for alcohol will not decline but only rise. This is a practical issue that combines economic, social, and psychological factors, and it is also the deepest confidence for capital to continue betting on the baijiu industry.


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