Premixed Cocktails: Review and Reflection, Where Is the Industry Headed in 2017?

Click image for details With Baorun's release of its 2016 annual report on February 25, all media attention once again focused on the premixed cocktail segment, which has seen dramatic rises and falls in recent years. The future of RIO, Baorun's premixed cocktail brand, is a focal point for everyone, as RIO's performance, with its 80% market share, largely represents the industry's direction. However, drawing conclusions about the industry's future from one company's earnings report is overly hasty. Let's review the development trajectory of premixed cocktails in recent years and recall the considerations of those who chased the trend after the cocktail craze. Two years on, how are those early adopters faring? Which players are still holding on to the cocktail category? Development Trajectory of Premixed Cocktails

• Before 2010: Market cultivation, low profile
• 2012: Market warming, led by Breezer
• 2013: Industry competition, RIO rises
  • Zhou Xun becomes RIO's advertising spokesperson
  • Advertising on Dragon TV
• 2014: Industry overheats, many followers
  • RIO: placements in hit dramas, sponsorships of premium programs, ads on three major satellite TV stations; RIO quickly becomes a hit
  • Black Cow Food: launches TAKI cocktails, signs Kim Soo-hyun as spokesperson, heavy advertising, expands marketing staff
  • Liquor giants Yanghe, Luzhou Laojiao, Gujing Gong, Wuliangye follow, launching their own cocktail products
  • Huiyuan Juice's Zhenxuan, Strong Group's MIKO
• 2015: Industry peak, hidden concerns emerge
  • March: AB InBev's MIXXTAIL cocktail trial sales in Shenzhen, first sold in upscale KTVs and clubs. Zhou Zhen, President of AB InBev's Southern Division, stated, "We will launch more classic cocktail flavors and packaging in the future, and promote them comprehensively in key cities nationwide."
  • June 18: Listed company Baorun completes acquisition of RIO for 5.5 billion yuan, creating a wealth myth. The premixed cocktail industry reaches its peak. Expansion in Tianjin, Chengdu, Foshan, and Shanghai.
  • October: Black Cow Food's cocktail brand TAKI loses 10 million yuan; president reportedly resigns
  • November: Qingdao Douglas signs Running Man's Zheng Kai to launch AK47 Men's Cocktail, with ads on Hunan TV
  • December: AB InBev launches MIXXTAIL nationwide
  • By year-end: Various negative news emerges; RIO is not spared. Q3 2015 sales drop sharply, with unsold inventory, channel backlog, price chaos, and cross-region selling. Clearly, the cocktail market has entered a deep adjustment phase.
• 2016: Industry suddenly cools, negative news abounds
  • March: Baorun's 2015 annual report reveals RIO's Q4 loss of 200 million yuan, causing public outcry and conspiracy theories.
  • Late October: Bacardi Breezer, once one of the two leaders, known for stable operations and foreign backing, is rumored to have halted production.
  • End of 2016: Black Cow switches to software.
• 2017: Where is the road? Let's review the major players in the premixed cocktail industry over the past few years and see their current status. Player 1: Black Cow TAKI Status: Total defeat, complete exit from FMCG On the evening of September 13, 2016, Black Cow Food, after a two-week trading halt, announced plans to raise up to 18 billion yuan through a share issuance to controlling shareholders to enter the OLED industry, formally transitioning away from the food sector. From then on, Black Cow is no longer in the FMCG world. Since its listing in 2010, Black Cow had some good times; in the first two years, revenue and net profit grew. However, due to a single main business and slowing growth in soy milk powder and cereal, pressure mounted. In 2010, it began developing liquid soy milk as a new profit point, which brought some hope. In 2011, revenue reached 857 million yuan, up 34.03% year-on-year, and net profit was 103 million yuan, up 26.93%. But with competitors like Weiwei, Yonghe King, and Yihai Kerry entering, performance declined sharply. In 2012, revenue fell 11% and net profit fell 46.24%. At that time, the hottest beverage products were Japan's Yakult and Baorun's RIO cocktail. In 2014 alone, RIO's sales grew 216% year-on-year, and net profit grew over 300%. Black Cow wanted both, so it pursued both. In the second half of 2014, it launched lactic acid bacteria drinks like "Heiniu Zai Zai" and "Duo Yi Tian," and at year-end launched "TAKI" cocktails. For the cocktail project alone, within months, it built a 130-person team with high salaries. Within six months, the premixed drink project recruited 200 distributors and 127 nightclub distributors. To build momentum, Black Cow spent 20 million yuan on a two-year endorsement deal with Kim Soo-hyun, star of "My Love from the Star." It also targeted youth-oriented media like Zhejiang TV and Hunan TV, with an advertising budget of tens of millions, to be increased based on sales. However, despite massive spending, following the trend did not yield good results. Black Cow entered the premixed drink market at its hottest in 2014, but by the time TAKI launched at the end of 2014, the market had already cooled rapidly. From January to September 2015, TAKI sold only 1,090.10 tons, generating sales revenue of 22.9194 million yuan. By the end of October 2015, Black Cow's first three quarters showed a net loss of 159 million yuan, down 6449% year-on-year. This dismal report led to the departure of the third general manager, Wu Dinan. In November 2015, Black Cow publicly auctioned its premixed cocktail production line, which had been launched with great fanfare a year earlier. Due to asset impairment losses, the annual net loss reached 640 million yuan, plunging Black Cow into an abyss. Thus, Black Cow became a true "shell company." Its actual controller, Lin Xiuhao, disheartened after failed transformation, began seeking a buyer. The appearance of Xizang Zhihe and Wang Wenxue brought relief, and a cooperation agreement was quickly reached. Black Cow embarked on the path of "selling its shell." Looking back at Black Cow's history, despite multiple transformation attempts, it never found the right path. Whether it was short-term-focused professional managers lacking long-term planning, or wrong directions and methods, these were the "death warrants." Blaming cocktails for Black Cow's failure is inappropriate, as both Yakult and RIO remain leaders in their fields. Player 2: Liquor Giants Represented by Yanghe Status: Return to core business as liquor market recovers From 2013 to the first half of 2015, the liquor industry was in deep adjustment, with unsold products, inventory backlog, falling prices, turnover difficulties, and e-commerce impact. Traditional liquor distributors were troubled, wondering where to turn. At that time, premixed cocktails like RIO and Breezer, driven by massive advertising and media promotion, created a hot sales atmosphere. Confused channel partners saw them as a savior, orders flooded in, and supply couldn't meet demand. This further stimulated more channel partners to join. Yanghe then announced its entry into the cocktail industry, launching the "Diyou" product for distribution. This move was seen by brokers as one of the three drivers of Yanghe's business, boosting its capital market appeal. As early as 2013, Yanghe had announced its intention to enter the premixed cocktail market. Chairman Wang Yao publicly expressed optimism about the market and set goals: launch in the first half of 2015 with a full-year target of 50 million yuan; become a mainstream brand in 2-3 years; and become a new growth pole and industry leader in 3-5 years. Given the sluggish liquor market, this strategy excited the capital market. Several brokers, including China Investment Securities, Haitong Securities, and Guotai Junan, expressed optimism in research reports. Notably, on January 30, 2014, Yanghe's stock price hit a low of 25.58 yuan per share. Over the next two years, it rose steadily to a high of 69.36 yuan on June 30, 2015, before slowly declining to 62.9 yuan by March 16. From Yanghe's announcement to its quiet exit, the stock rose about 176%. With the liquor industry's recovery in 2016, the liquor giants that had used premixed cocktails to boost their capital market performance exited the field as naturally as they had entered. Player 3: International Beer Giant AB InBev Status: MIXXTAIL continues to increase investment Compared to Black Cow's aggressiveness, AB InBev's entry into cocktails was more cautious. China's beer industry entered a downturn in July 2014, lasting 25 months until August 2016, when it returned to positive growth. By September 2014, the decline had reached double digits. At that time, AB InBev's R&D center in Wuhan began developing cocktails. By year-end, pilot production was complete, with the beer industry declining 17.1% in December 2014. In this context, AB InBev's entry into cocktails seemed natural, given its strengths in production technology, channels, and marketing. In March 2015, MIXXTAIL was trial-sold in Shenzhen, first in upscale KTVs and clubs. Zhou Zhen, President of AB InBev's Southern Division, said, "We will launch more classic cocktail flavors and packaging, and promote them comprehensively in key cities nationwide." On November 26, 2015, AB InBev officially launched MIXXTAIL nationwide at the Shanghai Shangri-La Hotel, even as the cocktail industry entered a deep winter. This bold move was somewhat against the tide. In 2016, AB InBev increased promotion, signing Kris Wu as brand ambassador, with considerable success. One of the Two Leaders: Breezer Status: Parent company returns to spirits; may revive if market improves Among the many players, Breezer is another key one, once known with RIO as the "two cocktail leaders." According to media reports, in November 2016, "Bacardi Breezer has basically ceased production, and distributor fees remain unresolved"; "The company no longer assesses Breezer's sales performance, and staff lack motivation to solve problems"; "Layoffs began around March or April..." Some observers noted that Breezer is not Bacardi's core business, so cutting it if performance is poor is acceptable. As long as Bacardi remains, the brand exists, and it can be revived when the market improves. Although Bacardi has not officially announced cutting Breezer, signs indicate it plans to focus on its core business in China, investing more in rum and spirits. Breezer is now somewhat "chicken ribs" for Bacardi—not worth abandoning entirely, as production lines exist and there is some market share. In regions with good performance, production may continue if distributors order. Bacardi stated about the future: "Going forward, Bacardi will focus on high-end spirits, enhancing competitiveness through business advantages, brand reputation, and strength, continuing to offer consumers a range of popular rums and acclaimed spirits." Leading Brand: RIO Status: After dramatic ups and downs, recovery began in Q3 2016 The rise and explosion of premixed cocktails largely came from the persistence and cultivation of leading brands like RIO, especially their innovation. The ups and downs are fully reflected in RIO's financial reports.
• 2012: 59 million yuan
• 2013: 186 million yuan
• 2014: 982 million yuan
• 2015 Q1: 775 million yuan
• 2015 Q2: 842 million yuan Thereafter, sales fell off a cliff for two consecutive quarters, with a huge loss of nearly 200 million yuan in Q4. In 2016, sales slowly recovered, losses narrowed quarterly, and in Q3 sales exceeded 300 million yuan with net profit turning positive. By January 2017, RIO sales were three times December 2016 levels. Compared to the 2015 Spring Festival, terminal sales during the 2017 Spring Festival actually grew nearly 10%, hitting a record high! From late January 2017, many sales terminals experienced stockouts and missing items. During the Spring Festival, RIO's nationwide out-of-stock rate exceeded 30%, with item-level stockouts over 20%. Data shows RIO has passed its most difficult period. In the domestic premixed cocktail industry, RIO has firmly secured the top position and is trending toward monopoly. However, consolidating its position, enhancing brand influence, and expanding target consumers depend on RIO management's grasp of its brand and product positioning, as well as the industry's development direction. It is reported that RIO will make strategic adjustments in market segmentation, such as the new STRONG series targeting young and middle-aged male consumers, reflecting efforts to lead industry development. Epilogue After this round of baptism, it is somewhat good for the brands that survive. After every crisis, brands with strength and foundation, as well as those with long-term commitment, can stand firm and strengthen their position and brand. Those who took shortcuts and used the industry as a tool to boost capital markets will ultimately be abandoned. For the premixed cocktail category to survive and grow, companies must engage in continuous innovation and breakthroughs in product strength, channel strength, organizational strength, strategy, and consumer interaction, especially in tracking and researching new consumer groups and trends. Brands like RIO that persist, if they respect market rules and manage expectations well, need not worry excessively. -END-