On November 13, COFCO Wine Co., Ltd.'s Great Wall Wine Division issued "Great Wall Product Management Document [2017] No. 1" titled "Notice on Comprehensively Reviewing the Great Wall Wine Product Line and Eliminating Some Inefficient and Ineffective Products." The notice stated that effective immediately, 407 SKUs under the Great Wall wine brand would be eliminated. No new packaging materials would be procured, and production would cease once existing packaging materials are used up. Finished product inventory would be quickly digested under the principle of no returns and no disruption to market order.

This is the first major move by Li Shiyi, the new general manager of the Great Wall Wine Division, nearly two months after his appointment, and it is also the most significant "slimming down" of Great Wall wine in recent years.

Mass Elimination of Inefficient Products

Great Wall wine had as many as 1,061 SKUs, and the first round eliminated 407, accounting for nearly 40% of the total.

Among them, the Shacheng factory focused on "Great Wall Five-Star Wine," mainly eliminating products with annual sales below 500,000 yuan, with 123 products eliminated;

The Sanggan Winery focused on "Sanggan Winery Special Reserve Shiraz Dry Red," and all Sanggan Impression series products priced below 300 yuan and customer-labeled customized products were eliminated;

The Yumo Winery eliminated 34 products, including the "Sunny Slope" and "Shahu B Version" series;

Great Wall Talent eliminated 41 products, including "Hotel Edition" and customer-labeled customized products;

The Penglai and Changli factories eliminated 59 and 101 products respectively, with the elimination criteria being annual sales below 500,000 yuan.

It can be seen that eliminating products with weak market monetization is the "debut" of Li Shiyi, deputy general manager of COFCO Wine and general manager of the Great Wall Wine Division, after taking office. It can be said that this is a bold reform.

An industry insider pointed out: "Cutting so many single products is the first step for Great Wall; the second step will continue to cut. Because for a brand to quickly achieve market breakthroughs, it must adopt a big single product strategy. In the early stage, Great Wall was constrained by its system, leading to a huge number of SKUs and an overly long product line, which prevented resource concentration. Cutting ineffective or weak brands is a good thing for Great Wall's long-term development."

Product Optimization Under Consumption Upgrade

Just during the opening of the Shanghai International Wine Fair on November 19, Changyu announced the global launch of the ninth-generation Bayberry Dry Red, which debuted on JD.com.

This time, Changyu adjusted its ninth-generation Bayberry wine matrix, optimizing the previous eighth-generation Changyu Bayberry series of 4 products into 3 products: Special Selection, Reserve, and Master, positioned in the 100-300 yuan price range, making Changyu's mid-range product image clearer.

From the global launch of the mass-market wine Drunken Poet to the launch of the new Bayberry, Changyu's big single product intention and strategy are very clear. This time, COFCO's review of its product line, optimization of product mix, and continuous improvement of product strength are also intended to bring consumers a better consumption experience.

According to Nielsen's 2016 alcohol consumer research, among alcohol drinkers aged 20-49 in first- and second-tier cities nationwide, the penetration rate of wine reached 83% in the past three months. 83% of alcohol drinkers had drunk wine in the past three months, and in terms of drinking frequency, these consumers drink wine every two or three days, indicating that wine is becoming increasingly popular among drinkers.

Li Shiyi even proposed that "the next three years are a critical window for the development of domestic wine." Clearly, Great Wall is about to re-equip itself, and Li Shiyi will continue to optimize and combine products based on market consumption demand.

Losses for 30 Consecutive Months

In the Chinese wine market, Great Wall wine is the second-largest player after Changyu, and it is a "golden signboard" in the Chinese wine category. However, the halo of "state banquet wine" cannot hide the bleak market. Relevant data shows that as of June 2017, China Foods' domestic wine business had been loss-making for 30 consecutive months. From 2015 to the first half of 2017, pre-tax losses were HK$241 million, HK$167 million, and HK$409 million respectively. Moreover, from 2011 to 2016, the compound annual growth rate of China Foods' domestic wine business revenue was -11%.

Since 2016, Great Wall wine has strengthened and optimized its product structure by raising ex-factory prices and replacing low-end product sales, promoting product focus. In September of the same year, Great Wall wine officially released its new brand strategy, focusing resources on the best-selling "Great Wall Five-Star" single product, implementing a big single product strategy, and promoting a new marketing model driven by brand and flat focus. However, Great Wall wine, with multiple resources in hand, has always found it difficult to deliver satisfactory results.

Currently, the wine market is experiencing consumption upgrades, and the domestic wine industry as a whole is in an adjustment period. However, Great Wall wine's sluggish performance is not only affected by the macro environment but also closely related to the company's internal operating model. It is understood that due to the lack of strong proprietary products in the early days of Great Wall wine, in order to achieve the goal of selling well nationwide, the company designated specific sales areas for distributors and authorized product operations. Monopolized regions, monopolized products, and excess profits attracted many distributors to join.

In recent years, because Great Wall wine has been implementing a large customer system, buyout and exclusive distribution products have become the mainstay, seriously diluting the brand value of Great Wall wine. Since 2008, Great Wall wine has launched self-operated products such as Sanggan and Talent Vineyard in an attempt to rebuild market advantages and strengthen its own brand influence, but so far with little effect. In addition, Great Wall wine has delegated the operation of some products to distributors, resulting in insufficient refined market operations and poor manufacturer control. Against the backdrop of internal and external troubles, Great Wall wine has always found it difficult to escape the predicament of weak development.

Large-Scale Reduction May Cause Short-Term Pain

"In fact, integration and division have always been a major problem plaguing Great Wall wine. In the past, when product sales were relatively large, large-scale SKU reduction had a significant impact on its distributors. At the same time, when product profitability and sales are limited, eliminating some low-return products will also cause short-term pain to Great Wall wine's performance," said wine marketing expert Li Xinxin.

Data shows that nearly half of Chinese wine consumers are concentrated in the mid-to-low-end consumer market of 100-300 yuan, while high-end wine consumers above 800 yuan account for only 11.1%. In fact, due to the reduction of low-end products, Great Wall wine's low-price product sales revenue fell sharply by 22.9% in the first half of 2017, directly leading to an overall 8% decline in the company's sales revenue.

While Great Wall was intensively clearing low-price products, Beijing Business Today reporters learned from Great Wall wine's Tmall flagship store that most of the eliminated products were not sold online. Among the brand's 22 best-selling wines, products with cumulative sales of more than 1,000 cases had an average price range of 26 to 75 yuan per bottle. Only 5 best-selling wines had cumulative sales of more than 10,000 cases, with an average price range of 29 to 69 yuan per bottle. It can be seen that the products currently accepted by consumers are still concentrated in the mid-to-low end.

Li Xinxin believes that cutting low-return low-end SKUs is not the key to achieving sustainable development for Great Wall wine. A more appropriate approach is to focus on macro brand building and evenly slim down and review the product line. In the future, the company should strengthen the launch of full-category products, increase cost-effective "people-friendly" products, and achieve a balanced layout. After cutting 40% of inefficient SKUs this time, how to plan and position the remaining products and rebuild the Great Wall product system should also be a careful consideration for Great Wall wine.

Can Continuing to Focus on the Big Single Product Strategy Recover?

Marketing expert Wang Dehui once wrote about the strategic significance of wine companies creating big single products. He pointed out that companies must create their own strategic big single products, which has clear practical significance: it can truly reduce consumers' choice costs; truly support the brand position and increase influence; improve market efficiency for the company; and provide strength for various cooperation and resource integration.

Of course, a strategic big single product may not be the best-selling one; its most important aspect lies in its strategic significance. During this period, any non-mainstream niche product is not a wise move. Of course, companies with different positioning will have different strategies, but from the overall market perspective, they must do mainstream.

Wine expert Guo Fusheng believes that Great Wall's move is not only in line with the general trend of consumption upgrades but also conducive to Great Wall's long-term development; it can focus advantageous resources and promote the rapid development of big single products such as Great Wall Five-Star. It avoids excessive competition and loss between internal brands, and even has a certain stop-loss effect on the internal consumption of Great Wall's customized wines, which is conducive to enhancing the visibility and market share of the Great Wall brand team.

On the Great Wall wine official flagship store on Tmall, the price of a 6-bottle set of Great Wall Five-Star is 1,228 yuan, with an average price of about 200 yuan per 375ml bottle. Great Wall Five-Star has always been positioned as a state banquet wine, and its product image is undoubtedly high-end. However, since it is to create a big single product, it needs to cater to market demand, make product pricing, product promotion, and brand characteristics based on the characteristics of the target group. What innovative methods will Great Wall Five-Star, which points to middle-class consumption, use to make consumers pay? Perhaps this is the next clever move by Li Shiyi, who is well-versed in imported wine operations.

"Leading the domestic wine industry to a distinctive development path with an international perspective" is Li Shiyi's commitment to COFCO. With the popularization of wine culture, consumers are becoming more rational and no longer blindly pursue high prices and big brands. Family consumption and self-drinking have become one of the mainstream ways of domestic wine consumption.

For the popular consumption trend under consumption upgrades, COFCO still needs to tailor corresponding market tactics and marketing strategies to gradually regain its former glory.

Source: "Huaxia Wine News" by Miao Qian, "Beijing Business Today" by Xiao Wei, Yuan Yuan, Yong Mei

Compiled and edited by New Distribution

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