On February 27, Rio Cocktail's parent company, Shanghai Baorun Group (hereinafter referred to as Baorun Group), released its 2017 performance report. The report shows that in 2017, Baorun Group achieved operating revenue of 1.172 billion yuan, an increase of 26.64%, and net profit attributable to listed company shareholders of 183 million yuan, a year-on-year increase of 224%.

At this point, after the slowdown in beverage sales due to macroeconomic slowdown since the second half of 2015, and a loss of up to 142 million yuan in 2016, the parent company of Rio finally turned losses into profits after a series of adjustments, achieving a record net profit increase of 325 million yuan.

Comparison of Baorun Group's Five-Year Performance

Regarding the reasons for the better performance, the announcement shows that it is mainly due to the good growth in revenue from both the flavor and fragrance business and the premixed cocktail business, as well as improved operational efficiency and reduced period expenses, which combined to have an impact.

As for the specific reasons for the surge in performance of the main business segment, premixed cocktails, analysis points out that it is mainly based on the following three points:

1. Sales Improvement

Since the second half of 2016, Rio has focused on communication and adjusting inventory structure to reassure distributors' confidence in the company. During the Spring Festival of 2017, Rio's sales began to recover. Due to the previous inventory turmoil, some regions even experienced stockouts due to insufficient inventory preparation, and this blowout recovery continued throughout 2017.

Starting from the first quarter of 2017, Rio began to turn losses into profits. By the third quarter, it achieved a net profit of 134 million yuan, a year-on-year increase of 228.13%. The fourth quarter maintained a stable growth rate, ultimately achieving a net profit of 183 million yuan, a year-on-year increase of 224%.

In addition, Rio accelerated its pace of launching new products, introducing the new product POPSS sparkling water in 2017. Since its launch, the new product has been actively marketed. From the feedback of terminals where it has been distributed, the sparkling water fully utilizes Rio Cocktail's production capacity and channel advantages for market placement, and sales are performing well.

Subsequently, two new products, "Qiangshuang" and "Jinshuang," were launched, targeting dining scenarios with the slogan "Great with meals," strongly developing the catering market and receiving good sales results. The promotion of these new products greatly contributed to the improvement of the company's profitability.

2. Reduced Expenses

While the company's operating revenue continued to grow, total sales expenses and their proportion decreased compared to the same period last year, making sales expenses more reasonable. In addition, Rio continued to deepen its presence in KA channels in 2017, increased SKUs, strengthened management and resource allocation, and significantly improved cost-effectiveness.

3. Government Assistance

One particularly noteworthy point in this performance forecast is that the announcement specifically stated that in April and December 2017, the company received two government subsidies totaling 45 million yuan, all of which were recognized as deferred income and not included in current period profit or loss. This subsidy income also contributed to Rio's rapid performance growth.

The surge in Rio's parent company's performance has led industry insiders to speculate: Is the spring of premixed cocktails returning? In the current era of increasingly diversified consumer demand, the market prospects for premixed cocktails are undoubtedly promising. According to a survey by the China Alcoholic Drinks Association, it is estimated that by 2020, domestic sales of premixed cocktails will reach over 150 million cases. Clearly, there is still much room for improvement before reaching the association's estimated figures.

The previous decline in Rio's performance was due to multiple factors, including distributors' overestimation, channel chaos resulting from overestimation, and Rio's subsequent decisive inventory reduction. After about two years of adjustment, Baorun's market and channels are now at a reasonable stage.

In 2017, Rio continued to increase capital and expand production, while strengthening its layout in catering and e-commerce platforms, and also launched segmented products. The forward-thinking Rio has gradually gotten on track, and we look forward to Rio achieving better market performance!

Source: Food Business (ID: tyjzksp)