Once crowned the 'Beer King of Northwest China' and officially listed on China's capital market in 1999 as the second beer company to go public, Lanzhou Huanghe was once a prominent player, with its flagship Huanghe Beer dominating the northwest and gaining fame across Gansu, Qinghai, and Ningxia provinces. However, time has passed, and heroes have their limits. Today, Lanzhou Huanghe appears in the public eye mainly for its stock trading exploits. Since its listing, fate seems to have turned against it, and Lanzhou Huanghe's operations have gradually fallen into trouble, heading downhill. In an attempt to change its fate, Lanzhou Huanghe has 'shifted its affection' to stock investment, which brings 'quick money,' increasing its bets year after year, while its core beer business has long been sluggish, with revenue continuously declining. The company's operating profit has fluctuated like a roller-coaster stock, and in many years, its survival has depended on stock investment gains. -01- Weak Main Business, Continuous Performance Decline Lanzhou Huanghe was established in December 1993, with its main business being the production and sale of beer, malt, and beverages. Its main products include the 'Huanghe' and 'Qinghai Lake' beer brands and 'Huanghe' malt, with beer accounting for over 65% of total revenue. Thanks to the scarcity of beer at the time, regional characteristics, and local affinity, Huanghe Beer quickly became a hit in Lanzhou and soon swept across the northwest, capturing over 30% of the northwest beer market and at one time holding more than 70% of Gansu province's market share. In those days, it could rival Qingdao Beer, Yanjing, and 'Southwest King' Chongqing Beer, while today's leader, China Resources Beer, was just emerging. In its early years, Huanghe Beer showed promise and developed rapidly, quickly expanding in Lanzhou, Tianshui, and other areas. In 1997 and 1998, Lanzhou Huanghe's operating revenue was 360 million yuan and 378 million yuan, up 25.34% and 4.92% year-on-year, respectively; net profit was 27.1026 million yuan and 32.8522 million yuan, up 31.95% and 21.21%. On June 23, 1999, Lanzhou Huanghe listed on the A-share market, becoming the second beer company to go public in China. However, after listing, Lanzhou Huanghe did not achieve the expected 'takeoff' through the market; its performance 'changed dramatically' in the first year of listing. In 1999 and 2000, Lanzhou Huanghe's net profit plummeted by 46.49% and 88%, and in the third year after listing, it fell into losses. In 2001, Lanzhou Huanghe lost 153 million yuan, a year-on-year decrease of 7359.83%; in 2002, it turned around through asset restructuring, but the following year it lost 15.6419 million yuan again. In the following six years, as China's beer market took off, Lanzhou Huanghe also experienced its best period of development, achieving profits each year, with annual profits ranging from 8 million to 31 million yuan. However, compared with other competitors, Lanzhou Huanghe still lagged behind, with insufficient scale, market share, and external expansion. Its main business performed poorly, and its expansion into other provinces was insufficient, keeping it in the middle-to-lower ranks of second-tier beer companies. Perhaps feeling that industrial operations were too hard and competition too intense, Lanzhou Huanghe began to focus on securities investment. In 2009, the A-share market experienced a small bull market, and encouraged, Lanzhou Huanghe decided to invest heavily in the stock market, seeking a 'quick path to wealth.' In 2010, Lanzhou Huanghe formulated a 'Securities Investment Internal Control System,' formally institutionalizing its active participation in the stock market in an attempt to quickly boost performance through securities investment. That year, Lanzhou Huanghe built a large position, buying shares in China Unicom, Agricultural Bank of China, Shenzhen Development Bank, and others, with an initial investment of 107 million yuan. The first year was a success, with Lanzhou Huanghe achieving a net profit of 102 million yuan in 2010, the largest operating result since its founding. From then on, it was unstoppable in stock trading. However, the capital market has never had a myth of guaranteed profits. Due to market downturn, Lanzhou Huanghe suffered losses again in 2011, with a net profit of -14.5928 million yuan. Then from 2012 to 2015, it returned to profitability. In 2016, the A-share market crashed, and its beer and malt production and sales subsidiaries incurred losses, resulting in a net loss of 25.0936 million yuan for that year. Looking at Lanzhou Huanghe's annual reports from 2014 to 2019, its revenue for those years was 796 million yuan, 702 million yuan, 678 million yuan, 596 million yuan, 507 million yuan, and 456 million yuan, down 10.36%, 11.79%, 3.48%, 12.01%, 14.68%, and 10.45% year-on-year, respectively, showing a continuous decline. Gross margin also kept falling, from 50.6% in 2015 to 39.6% in 2019. The data shows that both operating revenue and gross margin have declined significantly, leading to fluctuating operating profits and frequent losses. On August 6, Lanzhou Huanghe released its 2020 interim report, showing revenue of 164 million yuan, down 34.97% year-on-year; net profit was -9.979 million yuan, down 143.95%. In 2019, Lanzhou Huanghe achieved book gains of 30.014 million yuan from securities investment, a significant increase from the same period last year. However, after deducting securities investment gains of 30.014 million yuan, the actual net profit was -8.7507 million yuan, a sharp decline of 1833.78% compared with -452,500 yuan in the same period last year. It can be said that excluding stock investment gains, Lanzhou Huanghe has been losing money for the past three consecutive years. Table 1: Lanzhou Huanghe's financial overview for the past six years: Checking Lanzhou Huanghe's annual reports in recent years, its beer revenue in 2013 was 654 million yuan, but by 2019, it had fallen to 267 million yuan, a 60% reduction in six years. In stark contrast to the declining beer revenue, Lanzhou Huanghe has become increasingly invested in stock trading, turning into a 'stock fanatic.' In 2015, Lanzhou Huanghe bought stocks worth a total of 262 million yuan (nearly half of that year's beer revenue), which fell to 198 million yuan in 2016. In 2017, it increased its investment to 379 million yuan, and in 2018 and 2019, it surged to 729 million yuan and 850 million yuan, more than double its total revenue in 2019. The company's interim report for this year shows that its stock holdings are close to 500 million yuan. Over the past five years, Lanzhou Huanghe's investment in securities has nearly tripled, far exceeding its investment in the main business. It can be said that Lanzhou Huanghe's performance changes are highly correlated with stock trading gains. From 2010 to the first half of 2020, securities investment gains accounted for nearly 60% of the company's total net profit. However, things often don't go as planned. Entering the stock market did not feed back into the main business to bring sustained growth; instead, beer revenue continued to shrink, making the 'main body weaker.' Table 2: Lanzhou Huanghe's beer business operations from 2011 to 2019: From the table above, it can be seen that Huanghe Beer's production in 2019 was only 115,400 kiloliters. What does this figure mean? 115,400 kiloliters is only enough for the consumption of a large county in Shandong. This output is similar to Qiandao Lake Beer, but less than one-tenth of Laoshan Beer, a major regional brand. Once a 'Northwest King,' now such capacity and such a small regional market is truly lamentable. Table 3: Proportion of Lanzhou Huanghe's main product revenue: In recent years, due to unstable securities investment returns and a shrinking main business, Lanzhou Huanghe has turned its attention to real estate. In July 2019, Lanzhou Huanghe announced that it had applied to the Tianshui municipal government to change the land use nature of two parcels held by its subsidiary Tianshui Huanghe Jiajia Brewery Co., Ltd., intending to change industrial land to residential land. Based on the price difference of 1,601 yuan per square meter between secondary residential land and industrial land, if the change is completed, it could net a profit of 104 million yuan, while Lanzhou Huanghe's highest net profit since listing was 132 million yuan in 2010. On one hand, trading stocks; on the other, building houses, but unwilling to focus on the main business. Such 'absent-mindedness and neglect of duty' makes Lanzhou Huanghe's development prospects worrying. -02- Why Is Huanghe Beer Losing Ground? In summary, Huanghe Beer, as a major regional brand under Lanzhou Huanghe, has seen a significant decline in performance in recent years due to misdirected business strategies (such as the aforementioned enthusiasm for securities investment), inappropriate marketing strategies, equity disputes, and changes in the external environment. China's beer market has been on a downward trend in annual production since 2014. In 2014, the cumulative output of beer companies above designated size was 49.219 million kiloliters, which fell to 37.653 million kiloliters by 2019, a decrease of 24.5%. Lanzhou Huanghe's beer sales revenue has declined at a rate much faster than the national industry average. Although Lanzhou Huanghe still holds nearly one-third of the beer market share in Gansu and Qinghai provinces, the capacity of these two markets is also declining. In 2019, the Gansu beer market capacity fell about 20% compared with 2018, and Qinghai's fell about 18%, while over 70% of Huanghe Beer's revenue comes from Gansu. Therefore, the declining demand in the main markets of Gansu and Qinghai is also an important reason for its shrinking beer sales revenue. The current domestic beer industry has formed a market competition pattern where the strong get stronger and dominate, making it difficult for Lanzhou Huanghe to open the window for external expansion. After 20 years of mergers and acquisitions in the domestic beer industry, the top five giants—China Resources, Tsingtao, Budweiser, Carlsberg, and Yanjing—held a combined domestic market share of 85% in 2019. The market share left for small and medium beer companies is very small, and the polarization trend of 'the big get bigger, the small get smaller' is becoming increasingly evident. The decisive factor in the future market structure of China's beer industry is no longer 'big fish eat small fish,' but a duel between 'big fish and big fish.' Other beer companies can only continue to shrink their battle lines, focusing on core markets, core channels, and core stores to survive. This may be the fate of Huanghe Beer. With the upgrading of domestic consumer demand, consumers have higher requirements for beer quality. According to CIC Consulting, the growth rate of China's high-end beer market will remain above 20% in the next 10 years, while the low-end market will only grow at 6%. Against the backdrop of increasing industry concentration and continuous consumption upgrading, the strategy of lowering prices to gain market share is becoming increasingly unsustainable. To address these challenges, beer manufacturers have begun to downplay volume growth and adopt strategies such as promoting mid-to-high-end product upgrades and optimizing capacity. Under the wave of high-endization, most major beer companies delivered impressive results in 2019, achieving their best performance in nearly a decade. Currently, the first and second tier companies mainly produce mid-to-high-end beer, while Lanzhou Huanghe's beer is mostly mid-to-low-end. Coupled with its small size, it is inevitable that its revenue and net profit will be squeezed and decline. With China Resources and Tsingtao building production bases in the northwest, Lanzhou Huanghe's expansion window may have closed, making it difficult to go beyond Gansu and Qinghai, and it can only stay in a corner. In recent years, substitutes such as baijiu and red wine have risen in Gansu and Qinghai, and local baijiu companies have launched affordable low-alcohol products, which has impacted Huanghe Beer, whose peak season is already short. Currently, the Gansu beer market is basically occupied by Tsingtao, Huanghe, and China Resources, each holding about 30% market share. Although in the past two years, Huanghe Beer has carried out promotional activities such as the 'Huanghe Impression' new product launch and tasting events in conjunction with sales seasons and Double 11 and Double 12, and has opened and operated the 'Huanghe Beer' official account and Moments for promotion. At the same time, it has also used new media and traditional plane media such as airports and cinemas for penetration, aiming to further shape its unique regional cultural atmosphere and pure brand personality. However, insufficient investment and lack of resolute execution have mostly led to failure, making it unable to break through. Currently, Huanghe Beer has over a hundred varieties, including refreshing and low-alcohol types, to adapt to different market regions. While this meets the needs of different consumers, having too many product varieties also blurs the brand in consumers' minds, making it difficult to increase brand loyalty. For a long time, Huanghe Beer has used the origin factor division method, treating the Gansu market as its 'base market,' and adopting a diversified marketing channel model based on dealer channels, combining direct sales, online sales, and dealer agency. However, the overall channels are too long, inefficient, with too low an online proportion, and low effectiveness. Although Huanghe Beer has a mature channel model in the Gansu market, it appears outdated and has not fully penetrated remote township markets. -03- Where Is Huanghe Beer Heading? Besides clinging to stock trading as a 'lifeline,' what other tricks does the former 'Beer King of Northwest China' have? Where is Huanghe Beer heading? In recent years, Lanzhou Huanghe has been constantly seeking new directions and niches, including stock trading and real estate, but so far it seems unable to find its way. Currently, China's beer industry has entered a very urgent period of transformation and upgrading. For Lanzhou Huanghe, whether using securities or real estate to save itself, these are only temporary measures. The urgent and core issue is whether it can achieve sustained and stable growth of its main business while diversifying its market operations. True value investment should be based on the continuous growth of the main business, with other investments helping it develop better. Over-reliance on capital investment can lead to unbearable losses when the capital market is turbulent, and may even make it difficult to sustain. A healthy company should focus on its main business, actively transform and upgrade, and use external forces to create a better niche for its survival. For Lanzhou Huanghe, it should continue to deepen its local beer market, focus on core markets, core channels, and core stores to maintain stable profitability; at the same time, focus on its main business, continuously strengthen management innovation, product innovation, and marketing innovation in the beer business, and build a new type of beer enterprise suitable for online, mobile internet, and digital operations. Whether it is securities or real estate, these are short-term life-extending strategies that can only address immediate needs, not long-term development. The company must not put the cart before the horse by treating sidelines as the main business. Against the backdrop of industry-wide transformation and adjustment, Lanzhou Huanghe really needs to think about how to find living space and how to break through. Tips will be paid 400-2000 yuan once adopted.