During the planned economy era, when Luzhou Laojiao dominated, Fenjiu, Wuliangye, and Moutai were merely emerging players in the industry. After painful failures from extreme policies, Guojiao 1573 finally emerged, restoring Luzhou Laojiao's glory. Since 2015, Luzhou Laojiao has repeatedly vowed to return to the top three, but in the first half of this year, it even lost the fourth spot to Fenjiu. What's wrong with Luzhou Laojiao as the top three slip further away? 01 The Fall of a Dominant Player Thanks to its fermentation pits dating back to the Wanli period of the Ming Dynasty (1573 AD), Luzhou Laojiao, which holds nearly 90% of the industry's aged pits for strong-flavor baijiu, is hailed as "China's First Pit" and "Originator of Strong-Flavor, Master of Liquor." In 1954, Premier Zhou Enlai attended the Geneva Conference and specifically requested Luzhou Laojiao Daqu to entertain heads of state. From the founding of the PRC to the 1970s, Luzhou Laojiao Tequ was a special supply for the central government, with very little circulating to local markets—it was like an emperor's daughter who never worried about marriage. In the 1980s, as China transitioned from a planned economy to a market economy, Luzhou Laojiao entered the market at higher prices, becoming a leading product in the baijiu industry. Once the government lifted restrictions on the baijiu industry, facing a hungry national market, various distilleries sprang up like mushrooms after rain. In the market tide, famous Chinese baijiu brands like Luzhou Laojiao faced two paths: 1) Raise prices to maintain a high-end, scarce identity; 2) Focus on volume to embrace the vast blue ocean of the baijiu market. Wuliangye chose the former. In 1985, Wuliangye Group's output was only 2,000 tons. Facing a market where supply fell short of demand, Wuliangye began continuous price increases and brand image enhancement. It gradually occupied the consumer high ground and fiercely competed with red wine and foreign spirits for the high-end market. Fenjiu chose the latter. In 1985, through continuous expansion, Fenjiu's output exceeded 8,000 tons, equivalent to the total output of the 13 famous baijiu brands nationwide at that time. In 1986, Fenjiu became the first enterprise in the country to exceed 10,000 tons in output, and "Fen Boss" began to rise. However, at that time, Luzhou Laojiao's leadership had differing development philosophies and severe internal conflicts, leading to reduced market attention. Coupled with years of dominance and the conservative mindset that "good wine needs no bush," its response was very slow. In 1988, the State Council lifted price controls on famous baijiu. Luzhou Laojiao, which had more room to raise prices, made a surprising decision: "Famous liquor becomes people's liquor"! By voluntarily lowering prices, it directly left the high-end baijiu camp and embraced the broader "people's liquor blue ocean," handing the top position in the high-end baijiu market directly to Wuliangye. This serious strategic error almost permanently cost Luzhou Laojiao its dominant position. Although the people's liquor market was vast, it was crowded with small, mixed-quality distilleries, making competition fierce. To monopolize the mid-to-low-end market required significant capacity and sales channels, which was exactly what high-end baijiu brands needed to learn. Under the capacity ceiling, no matter how big Luzhou Laojiao's name was, it couldn't dominate the entire market. There's a saying in the baijiu industry: "Low-end depends on marketing, high-end depends on capacity." Mid-to-low-end liquor not only has lower prices and profits but also lower customer loyalty, making it difficult for companies to secure market share. After all that effort, Luzhou Laojiao not only fell behind Wuliangye and Moutai in price but also saw its brand image rapidly decline. 02 The Tragedy of the Other Extreme In 1989, Wang Mingzao, the most controversial factory director in Luzhou Laojiao's history, took office and led the company into another extreme. With ambitious aspirations, he clearly felt the pain of the previous "people's liquor" strategy mistake and began planning product upgrades. In 1992, he launched "Golden Jazz," dubbed "China's First Bottle," a product resembling an ancient cannon platform, priced at 1,800 yuan. Upon its release, the liquor caused a stir, even drawing criticism from central media. At that time, many famous liquors were still priced around 20 yuan, and Moutai and Wuliangye were only over 100 yuan. The sky-high price of 1,800 yuan for Golden Jazz was clearly "overkill." His ambitions were even greater in corporate development. After inspecting foreign liquor companies, Wang Mingzao made a "forward-thinking" decision: to transform Luzhou Laojiao into a modern joint-stock company, issue stocks to employees, and seek listing on the capital market in the future. This move displeased officials of Luzhou Municipal Government. To avoid "good fortune flowing to outsiders," relevant leaders kindly warned Wang Mingzao. But he remained unmoved, not only establishing offices in Xiamen, Haikou, Shanghai, and Guangzhou, but also setting up trading companies and entertainment complexes in Shenzhen, and even planning overseas sales offices. Just six months later, the "disobedient" Wang Mingzao "fell from power," imprisoned for 7 years on charges of accepting 70,000 yuan in bribes. His plan to list the company in 1993 was interrupted. However, the following year, to show support for Shenzhen's opening-up, the province suggested that Luzhou government promote the listing of quality enterprises. In May 1994, Luzhou Laojiao was listed on the Shenzhen Stock Exchange. Although the listing was completed, Luzhou Laojiao's price increase efforts ended in chaos. By 1992, the baijiu market had changed; the momentum of earlier years was gone. From 1989 to 1992, the state implemented a tight monetary policy, leading to a significant slowdown in baijiu market growth and intensified competition among distilleries. Raising prices against the trend was naturally difficult for Luzhou Laojiao. Moreover, Wuliangye and Moutai had solidified their positions in the ultra-high-end baijiu market, which Luzhou Laojiao, now labeled a second-tier brand by consumers, could not easily shake. In 1994, Wuliangye, while aggressively raising prices and expanding production, successfully overtook Fenjiu, which continued to cut prices, becoming the new leader in the baijiu industry. Luzhou Laojiao also maintained price increases for several years, but only saw a severe decline in terminal sales, increased inventory and capital costs for distributors, and price inversion that severely dampened distributor motivation, sapping the company's vitality. By 1998, Luzhou Laojiao's industry ranking in profits and taxes had fallen to sixth. 03 Turning Point After the "extreme left and extreme right" mistakes, Luzhou Laojiao began to see a turnaround in 1999. The new group president, Yuan Xiuping, launched the high-end baijiu brand "Guojiao 1573," signaling the return of a king. When this liquor was launched, the company emphasized that it came from century-old Ming and Qing fermentation pits, with a base liquor production capacity limit of only 3,000 tons. Scarcity rebuilt brand value, and with the promotional campaign "History You Can Taste," consumers were very receptive. Positioned as "the first choice for high-end business use," it initially sold 70% through restaurant and hotel channels, competing with Wuliangye and Moutai through differentiation. Although Yuan Xiuping resigned in 2004 and disappeared from the industry, fortunately, Guojiao 1573 caught a good era. From 2003 to 2012, China's GDP grew at a compound annual rate of over 10%, and the baijiu industry entered a golden development period. Riding this wave, Luzhou Laojiao returned to the first tier of the industry with Guojiao 1573, achieving success in both brand value enhancement and business performance. Before 2005, Luzhou Laojiao's annual sales profit was only over 45 million yuan. By 2010, profits soared to 4.371 billion yuan, a 100-fold increase in five years, making it a highlight of China's liquor industry in 2010. During this process, the company's pyramid-shaped brand structure basically formed: Guojiao 1573 at the top, emphasizing brand height and reputation; Luzhou Laojiao as the pillar, emphasizing support; and other brands at the base, emphasizing breadth and market share. Luzhou Laojiao's good times didn't last long before the next crisis arrived. At the end of 2012, the baijiu plasticizer scandal and the Eight Regulations led to a significant reduction in official and business consumption, causing a rapid decline in baijiu sales. In 2013, Moutai surpassed Wuliangye to become the leader, and the following three years saw a deep adjustment period for the baijiu industry. Facing market changes, Luzhou Laojiao, aiming to become the industry leader, embarked on another "self-destructive" price increase. In 2012, the ex-factory price of Guojiao 1573 was raised from 619 yuan to 889 yuan per bottle, and in 2013 it was raised again to 999 yuan, exceeding Feitian Moutai and standard Wuliangye. Luzhou Laojiao's brand power clearly couldn't support this price point, and the market response was honest: Guojiao 1573's revenue plummeted from 7.56 billion yuan in 2012 to 898 million yuan in 2014, a drop of nearly 90%. This sales collapse also disrupted the company's entire sales and pricing system, hindering sales across all product lines. In 2014, Luzhou Laojiao was forced to cut prices for Guojiao 1573 three times, from 999 yuan/bottle to 680 yuan, then to 580 yuan, and finally to 550 yuan, nearly halving the price. 04 The Unreachable Top Three In 2015, Luzhou Laojiao changed leadership again. The new chairman, Liu Miao, has been shouting the slogan "Return to the Top Three" for seven years now. In 2015, facing issues of large capacity, many products, and scattered markets, the company began a series of measures: cutting product codes, streamlining product lines, halting shipments, and adjusting prices. Within six months, Luzhou Laojiao reduced its product codes from 3,000 to 900, making way for major single products. In 2016, the baijiu industry began to recover, with consumption gradually shifting from government and business to personal and business consumption. As fewer young people drink baijiu, overall production has declined year after year, but the high-end baijiu market has flourished. As the industry concentrated on quality, brands, and leading enterprises, Guojiao 1573's share of the group's sales increased annually, from 36% in 2016 to 65% in 2020. In 2017, Guojiao 1573 raised prices in line with Moutai and Wuliangye, entering the thousand-yuan price band. Jiannanchun, Fenjiu, and others also chased closely, making competition in this price band extremely fierce. Although Guojiao 1573 secured its position in the thousand-yuan band, Luzhou Laojiao's overall brand momentum was insufficient, casting doubt on its battle with Yanghe and Shanxi Fenjiu for the third spot. "High-end baijiu depends on production capacity." To return to the top three, Luzhou Laojiao's urgent task is to break through its production capacity ceiling. In recent years, Luzhou Laojiao, which has been raising prices slowly, has begun to aggressively expand capacity. In 2020, Guojiao 1573's single-product sales reached 13 billion yuan. Some media estimated that sales volume exceeded 7,000 tons that year (based on the rule that 1 ton of base liquor can be blended into 1.67-2 tons of finished liquor, its base liquor usage was at least 3,500 tons), already higher than the previously mentioned capacity limit. Netizens began to speculate that Guojiao 1573's cellars are no longer just the 1,619 century-old pits. This speculation is not unfounded. In 2016, in a technical renovation project with a total investment of 7.4 billion yuan, Luzhou Laojiao stated that the new pits would not be used for producing high-end base liquor, but rather, after building new pits, the old pits used for mid-range products would be freed up to focus on producing high-end base liquor. Some netizens began to worry about a decline in Guojiao 1573's quality, even fearing brand value dilution. But it cannot be denied that increased production has driven Luzhou Laojiao's revenue growth. At the end of the 13th Five-Year Plan in 2020, Luzhou Laojiao recorded revenue of 16.6 billion yuan. Unfortunately, Yanghe took the third spot with 21.1 billion yuan, and Luzhou Laojiao's dream was shattered again. In 2021, its revenue was 20.64 billion yuan, while Yanghe's reached 25.3 billion yuan, still far ahead. Worse, Fenjiu was close behind with 19.97 billion yuan. In 2022, Liu Miao, re-elected, again proposed returning to the top three. Based on the first-half revenue figures, the company achieved revenue of 11.664 billion yuan, a year-on-year increase of 25.19%, and net profit of 5.532 billion yuan, up 30.89%. Although growth was gratifying, its revenue ranking was only fifth, still behind Yanghe's 18.908 billion yuan and Fenjiu's 15.334 billion yuan. As a former dominant player, Luzhou Laojiao's decline is regrettable. Compared with current leader Moutai, the wavering Luzhou Laojiao lacks strategic determination. In 2022, it may not even hold the fourth spot, but for a company, ranking is just a number; the future of the enterprise is what truly matters. Luzhou Laojiao, which relies heavily on Guojiao 1573, should be wary. The baijiao industry is now facing quality upgrades, not price upgrades. Therefore, high prices are not a weapon for brands; high quality is. Enterprises must not invert cause and effect, overdrawing the brand's future and affecting long-term development. -END-