Beer leader continues to write the China Resources story Today (August 18), China Resources Beer released an impressive 2023 interim report. The announcement shows that in the first half of 2023, China Resources Beer's revenue was RMB 23.871 billion, up 13.6% year-on-year; profit before interest and tax was RMB 6.245 billion, up 21.1%; both figures significantly outperformed the beer industry. In the beer business, in the first half of the year, China Resources Beer's sales volume was approximately 6.571 million kiloliters, up 4.4% year-on-year; the product mix continued to improve, with sales of premium and above beer at approximately 1.444 million kiloliters, a continued substantial increase of 26.4%. Among these, the Heineken® brand performed exceptionally, growing nearly 60%. In the baijiu business, in the first half of the year, China Resources Beer's baijiu business revenue was approximately RMB 977 million, with pre-tax profit of RMB 71 million. After several years of rapid growth, China Resources Beer still maintains a high-quality growth momentum. Especially in the first half of this year, when the consumption environment was exceptionally complex, achieving such a report with both volume and profit growth, especially a significant profit increase, is particularly commendable. From China Resources Beer's interim report, it can be seen that this leading Chinese beer company continues to write its unique China Resources story, with more new connotations. On one hand, the beer business continues to advance on the path of high-end competition; on the other hand, the baijiu business is exploring a new world, starting to implement the development strategy of "beer-baijiu dual empowerment" from brand layout to actual implementation. Interpreting Hou Xiaohai's Q&A with reporters On the afternoon of August 18, China Resources Beer held its interim results conference in Hong Kong. "New Distribution" recorded the Q&A session with Hou Xiaohai, Chairman of China Resources Beer, and attempted to analyze the company's possible future development strategies and paths through his answers. 1) Highlights and shortcomings of China Resources Beer's first half operations Hou Xiaohai, Chairman of China Resources Beer, stated at the interim results conference that he believed there were two major highlights in the first half of 2023 operations. Highlight 1: The Heineken® brand performed exceptionally, with ultra-high growth of nearly 60%. This proves that the "Chinese brand + international brand" strategy formally proposed by China Resources Beer in 2019 has truly begun to bear fruit. The ultra-high growth of the Heineken brand, on one hand, proves the true influence of Heineken as a global high-end leading brand; on the other hand, it also fully proves that the China Resources Beer team, after three years of practice, has mastered effective tactics in the high-end beer market. Hou Xiaohai further stated that the Heineken brand will continue to maintain rapid development in the future, and may eventually form a 50-50 split between "Chinese brands" and "international brands". Highlight 2: China Resources Beer's premium and above beer grew at a rapid 26.4%, and it is expected to achieve the number one market position in premium and above beer this year or next. One of the core goals of China Resources Beer's "3+3+3" strategy is to surpass major competitors in the Chinese high-end beer market and become the number one in the high-end beer market. According to this development speed, China Resources Beer may achieve the core goal of being number one in high-end beer market share this year or next. Since the second quarter of 2023, the consumption market for Chinese FMCG has seen consumption obstruction and weak growth. Will the high-endization process of Chinese beer be fundamentally affected? Hou Xiaohai stated that China Resources Beer is optimistic about the long-term high-endization of Chinese beer and has firm confidence. The current insufficient consumption expectations and shaken confidence are cyclical short-term effects, which have not changed the overall trend of high-endization, nor the consumers' motivation to pursue better products. Therefore, China Resources Beer's goal in the high-end beer market has not changed: to break through 3.5 million kiloliters in high-end beer sales in the coming years and become the leader in the Chinese high-end beer market. Hou Xiaohai said, "We have two unshakable commitments: one is to unswervingly adhere to the goal of exceeding 3.5 million kiloliters in premium and above sales in the next three years; the other is to unswervingly adhere to the goal of surpassing major competitors in premium and above." In addition, Hou Xiaohai also pointed out shortcomings in the first half operations. First, in some weak markets, there was still no breakthrough in the first half, failing to reverse the unfavorable market situation; second, after proposing "growth as the primary strategy" at the end of 2022, some regions were slow to act and lacked decisive strategies, missing opportunities for volume growth of bottom-tier products in the first half. 2) Hou Xiaohai comments on the baijiu business When commenting on the baijiu brands under China Resources, Hou Xiaohai gave targeted evaluations of Jinsha, Golden Seed, and Jingzhi, and stated that the transformation and development of the baijiu business had met or even exceeded management expectations. In the first half of the year, Jinsha Distillery successfully completed two core tasks: "channel inventory management" and "restoration of the price system." Among these, channel inventory decreased by more than one-third, and the price system was restored, boosting market and distributor confidence. At the same time, Jinsha Distillery completed the sorting and innovation of products such as "Zhaiyao," "Jinsha Huisha Wine," and "Jinsha Xiaojiang," initially forming a layout of high-end, mid-range, and light bottle wine. Golden Seed Wine's operating performance continued to improve, but it is still in the market investment period, and its later performance in sales and profit is worth expecting. Jingzhi Wine has basically completed internal transformation, and has repositioned and relaunched the two brand products "Jingyangchun" and "Jingzhi Laobaigan." When commenting on the baijiu business, Hou Xiaohai specifically stated: "The core reason for the deep adjustment in the baijiu business now is mainly that past baijiu investment was too hot and expectations were too high, to some extent causing prices to deviate from value. This round of baijiu adjustment is to make baijiu return to its true value. Baijiu is ultimately a consumer product, and the essence of consumer goods is to sell and consume, not to invest." What major moves might China Resources Beer make in the second half of the year? "Looking ahead to the second half of 2023, growth will continue to be China Resources Beer's primary strategy," is the original wording in this interim report, "China Resources Beer is committed to expanding scale, improving quality, consolidating the bottom, moderately adjusting prices, lean expenses, and precise store management," and to "strive to achieve good growth throughout 2023. " How should this be understood? Combined with Hou Xiaohai's Q&A, the following changes may occur in the second half of the year. 1) The emphasis on scale will greatly increase. The concept of "good growth" should be the first time it appears in China Resources Beer's financial report. How to understand this "good growth"? Good growth means everything is good, it is "a big head, a thick waist, and strong legs," it is high, medium, and low-end advancing together, and it is both scale and profit growth. China Resources Beer also clearly stated in the interim report that it will adhere to the development policy of "growth, restructuring, refinement, good growth, and rules," with growth placed first. Therefore, we judge that in the high-end beer market, China Resources Beer's basic tactics should not have major adjustments, and it will continue to extend and replicate the current effective tactics. For example, the experience and capability of Heineken brand's ultra-high growth in markets like Fujian should be deeply summarized and promoted to other markets according to local conditions. At the same time, China Resources Beer may increase efforts in medium and low-end beer, especially placing great importance on the growth of bottom-tier products. This year's beer consumption has shown a K-shaped differentiation trend to some extent, with high-end growing and the bottom market also seeing volume growth. Only by vigorously focusing on the bottom market can it maintain volume growth on the basis of the high performance in the same period of the third quarter of 2023. The bottom market is the battlefield where China Resources Beer is most skilled. It can be predicted that when it turns its attention back to this field, competition for bottom-tier beer products in the second half of the year will intensify. 2) Discuss market strategies for weak markets and make them the next growth point. In some markets where Snow Beer is weak, how should strategies be formulated and implemented according to local conditions around the market and channels, thereby reversing the unfavorable local situation? We believe this may be a key direction for China Resources Beer to focus on in the second half of the year. China's beer market has basically become a typical stock market form. In a stock market, growth can only come from two directions: one is product structure upgrading; the other is market share improvement in weak markets. The former mainly brings profit improvement, while the latter can bring considerable sales volume growth. In advantageous markets, facing aggressive challengers, it is difficult to significantly increase high market share further. But in weak markets, with appropriate strategies and strong execution, it is possible to achieve a larger share breakthrough. Therefore, we judge that in the relatively weak "three norths and one south" of Snow Beer, namely Northeast, North China, Northwest, and South China, there will be significant strategic adjustments in the second half of the year, and phased results will be seen soon. 3) Jinsha Distillery will begin implementing transformation in the second half of the year, with acceleration expected next year. Hou Xiaohai believes that after the China Resources Beer team entered for seven months, "the change at Jinsha Distillery has exceeded expectations." Jinsha Distillery has completed organizational transformation internally, and at the market level, it has completed the sorting of channel inventory for the Zhaiyao brand, restoration of the price system, the repackaging of the Jinsha Huisha real age series products, and the launch of "Jinsha Xiaojiang" light bottle wine. We believe that Jinsha Distillery's strategy may be as follows: First, focus. High-end wine focuses on the "Zhaiyao" brand, with the core single product being the classic Zhaiyao Tribute Edition; mid-range wine focuses on the "Jinsha Huisha" real age series. The "Zhaiyao" brand series can only go upward, with the Zhaiyao Tribute Edition as the base product. Development products under the "Zhaiyao" brand will be strictly controlled; except for high-value cultural and creative products, it is estimated that development wine with circulation positioning will not be allowed. Distributors who want to do development wine can only find opportunities in "Jinsha Huisha." Second, the real implementation of the "beer-baijiu dual empowerment" business strategy. Previously, China Resources Beer's "beer-baijiu dual empowerment" was mainly concentrated at the talent, training, resources, and management system level, while market-level implementation was still in practice and exploration. The first step of market-level "beer-baijiu dual empowerment" is the two-way empowerment of distributor and terminal resources. Snow Beer provides high-quality, capable, and motivated distributors for baijiu, and helps baijiu gain access to some terminal resources, especially catering terminals; baijiu brands provide products for Snow Beer distributors, bringing terminal influence improvement and profit growth. We believe that in the second half of 2023, we may see a large amount of integration at the distributor and terminal level in the market operations of the three China Resources baijiu brands: Jinsha Distillery, Golden Seed Wine, and Jingzhi Wine. Once this integration forms effective experience and mechanisms, it will help China Resources Beer quickly build the baijiu business into a second growth curve. "New World" is a concept proposed by Hou Xiaohai, Chairman of China Resources Beer, to summarize all the tremendous changes faced in recent years. Its connotation has gradually expanded from "Beer New World" to "Baijiu New World" and "Chinese Liquor New World." The China Resources Beer interim report states that the "New World" carries the mission of promoting continuous change and progress, while continuously shaping stronger competitive capabilities. The concept of "New World" will continue to guide and lead China Resources Beer to move more business and vision toward the future and change. Deeply and continuously focusing on a company like China Resources Beer, which is constantly transforming and advancing in the "New World," not only helps us grasp the innovation and changes in the Chinese liquor industry, but also helps us reflect on and confirm our own company's development strategies and paths.