Summary: On April 28, a loss-making performance report once again shook the premixed cocktail market. Just one year apart, the bright performance halo around Rio Cocktail has faded.
Rio Cocktail's Turn to Loss Pressures Baorun Shares Legal Weekend Reporter: Dai Xiuhui
Just one year apart, the bright performance halo around Rio Cocktail has faded.
On April 28, a loss-making performance report once again shook the premixed cocktail market.
The announcement was made by the "head" of the leading brand Rio Cocktail, Shanghai Baorun Investment Holding Group Co., Ltd. (hereinafter referred to as Baorun Shares).
Baorun Shares is a listed company operating in flavors and fragrances and premixed cocktails. Among these, the flavors and fragrances business accounts for only about 5.8% of operating revenue (based on 2015 performance), while Rio Cocktail is currently the main focus of Baorun Shares.
According to Baorun Shares' performance report, in the first quarter of 2016, its operating revenue was 216 million yuan, a year-on-year decrease of 73.3%; net profit attributable to shareholders of the listed company, excluding non-recurring gains and losses, was a loss of 85.12 million yuan, a sharp year-on-year decrease of 741.16%.
"The company's operating revenue decreased by 73.3% compared with the same period last year, mainly due to the significant decrease in the main business revenue of Bacchus Wine Industry. Operating costs and taxes and surcharges decreased correspondingly with the decline in main business revenue." Baorun Shares attributed the sharp decline in first-quarter performance to its wholly-owned subsidiary, Bacchus Wine Industry.
"Bacchus Wine Industry is actually mainly responsible for the production and sales of Rio Cocktail. Rio Cocktail's performance turned from profit to loss," said Zhu Danpeng, a researcher at the China Brand Research Institute, to Legal Weekend reporter.
In fact, Rio Cocktail's performance loss was already exposed in 2015.
As early as January this year, Baorun Shares adjusted its forecast for net profit attributable to shareholders of the listed company for 2015 from a year-on-year increase of 150% to 200% to 60% to 90%; and adjusted the net profit range from 717 million to 860 million yuan to 459 million to 540 million yuan.
As a result, the industry speculated that Rio Cocktail's performance may have experienced a cliff-like decline in the fourth quarter of 2015.
"The sales volume of the company's premixed cocktail business in the fourth quarter of 2015 differed significantly from original expectations. Originally expected to grow quarter-on-quarter, actual operations showed a significant decline in the fourth quarter compared with the third quarter," Baorun Shares admitted in its reply to the Shenzhen Stock Exchange's inquiry letter.
On March 17, Baorun Shares' 2015 annual performance report confirmed this industry judgment.
According to Baorun Shares' performance report, in the fourth quarter of 2015, net profit attributable to shareholders of Baorun Shares, excluding non-recurring gains and losses, was a loss of 207 million yuan. This was a huge contrast to the high profitability in the first three quarters of 2015.
Entering the first quarter of this year, Rio Cocktail's loss situation continued, with a profit loss of 85.12 million yuan.
Baorun Shares admitted that in the first quarter of 2016, "selling expenses increased by 37.4% year-on-year, mainly due to increased market investment and expansion of the sales team at Bacchus Wine Industry"; "management expenses increased by 44.21% year-on-year, mainly due to the expansion of management scale at Bacchus Wine Industry."
At the same time, in its forecast for operating performance from January to June 2016, Baorun Shares was also not optimistic.
Baorun Shares stated that the first half of 2016 would still be "loss-making"; it expected a net loss of 50 million to 150 million yuan for January to June 2016, with net profit attributable to shareholders of the listed company expected to be a loss of about 613 million yuan.
"In the second quarter of 2016, the company will continue to digest distributor inventory with earlier production dates, while accelerating the distribution and promotion of new products 'ORIGINAL' and 'STRONG'. It is expected that sales will gradually return to normal levels in the second quarter," Baorun Shares said.
"As a leading brand in the premixed cocktail industry, Rio's performance data has seen such a cliff-like change, indicating that its explosive growth is over. Due to excessive pressure on distributors to stock up last year to boost 2015 performance, it is currently still in the stage of digesting inventory," Zhu Danpeng said.
Industry Swarm Erodes Rio's Performance
What is eroding Rio's sales performance behind the scenes, causing it to turn from profit to loss? This all goes back to two years ago.
In 2014, through a series of reality show advertisements and TV drama product placements, Rio Cocktail became famous and sales soared.
In the second half of 2014, Baorun Shares acquired Bacchus Wine Industry, the leading domestic premixed wine company, through a share issuance, and Rio Cocktail's high-profit financial data was thus exposed.
Public data shows that Bacchus Wine Industry's operating revenue in 2013 increased by 216.75% year-on-year; in 2014, Bacchus Wine Industry's sales revenue increased by 216% year-on-year, and net profit increased by more than 300%.
At that time, Baorun Shares optimistically judged that China's premixed cocktail industry was in a stage of rapid growth, "the market will continue to grow at a high speed, with sales volume reaching over 150 million cases by 2020, and sales amount reaching the level of 10 billion yuan."
"The high growth and high profits behind Rio were like a 'lifeline' for the beverage industry, which was at a low point at the time," Zhou Binhong, a mid-level researcher at China Investment Consulting, told Legal Weekend reporter.
The temptation of 10 billion yuan and high profit margins were also very much in line with the consumption needs of the 'post-90s' and 'post-00s' young people. For a time, various capitals were eager to share this 10 billion yuan market cake.
At the end of 2014, Heinong Food Co., Ltd. (hereinafter referred to as Heinong Food), which had been engaged in plant protein beverages, was the first to announce a strategic shift to the premixed wine industry.
Heinong Food was not the only one crossing over into the cocktail market. Public information shows that during 2014 to 2015, beverage giant Huiyuan Group launched "Zhenxuan" premixed wine; Gujing Gongjiu established Baiwei Lujiu Co., Ltd.; Wuliangye launched Dracula premixed wine; in addition, Moutai, Yanghe, and many other companies also said they were researching and considering entering the premixed wine market.
"Blindly flocking to the industry led to overcapacity, but the real market demand is very small. Excessive hype, supply-demand imbalance, and serious product homogenization caused the 10 billion yuan premixed cocktail market bubble to burst, with Rio Cocktail bearing the brunt," Zhou Binhong said.
Zhu Danpeng said that optimistic industry forecasts also prompted Baorun Shares to increase production capacity for Rio Cocktail, which was undoubtedly a mistake.
"These extra Rio products were all pushed to channel distributors. A Rio distributor told me a while ago that he still has 320,000 cases of Rio Cocktail products on hand, unable to push them into the market. This also means that most of the Rio products currently on the market were produced last year," Zhu Danpeng revealed.
The situation revealed by Zhu Danpeng was confirmed by Legal Weekend reporters visiting several supermarkets in Beijing. Legal Weekend reporters noticed that the production dates of Rio premixed wines on sale in supermarkets were mostly concentrated from October to December last year, with the latest date being January this year.
Legal Weekend reporters attempted to contact Baorun Shares and Bacchus Wine Industry to understand more details, but ultimately failed.
"This shows that Rio's terminal channels are blocked," Zhu Danpeng said.
"Last year, Baorun Shares acquired Bacchus Wine Industry, which on the one hand led to a significant increase in selling expenses, management expenses, and financial expenses," Liang Mingxuan, a food industry researcher at China Investment Consulting, told Legal Weekend reporter. "On the other hand, affected by the slowdown in the premixed cocktail market and increasingly fierce low-price competition in the industry, Baorun Shares' main business profit space has been compressed."
Hidden Danger Lies in Heavy Marketing, Light Product
In Liang Mingxuan's view, Baorun Shares' turn from profit to loss sends some bad signals that should be taken seriously.
"Rio premixed cocktail's explosive popularity model, which overemphasizes marketing and neglects products, has long laid hidden dangers for its sustainable development. It is expected that Rio's performance would hit a turning point," Liang Mingxuan said.
Liang Mingxuan explained that in the global market, premixed cocktails account for a much higher proportion of alcoholic beverages than in the domestic market, and the industry still has considerable room for development. However, to increase the stickiness of young consumers who love novelty, companies should rely more on products rather than just marketing. "Whether Rio can turn around in the future depends on whether it can truly build its products."
Zhou Binhong expressed a similar view to Legal Weekend reporter.
"Premixed cocktails are generally made by blending base wine, flavors, and water, with low cost. A bottle of premixed cocktail selling for over 20 yuan in the market costs only about 3 yuan, and the entry barrier is not high," Zhou Binhong said. "The characteristics of low cost and high gross profit attracted many companies, and the rush led to fierce vicious competition in the market. Coupled with highly similar products and no innovation in promotion models, the industry's profit space has rapidly declined."
Zhou Binhong believes that Rio needs to solve the problem of product homogenization to develop.
In addition, in Zhu Danpeng's view, Baorun Shares should strengthen the guidance and cultivation of consumer groups for Rio Cocktail products.
"In the current premixed cocktail market, consumer loyalty to products is very low, and this is something Baorun Shares needs to change. For example, when the market is full of Rio products with old production dates and other cocktail brands with very new production dates, consumers will tend to choose products with newer production dates," Zhu Danpeng explained. "In this process, consumers will question, 'Why are your products' production dates older than others? Is it because they don't sell well or the product is not good?' Other cocktail brands are actually eroding Rio's sales."
In Zhu Danpeng's view, one way for Baorun Shares to solve the current loss crisis is to buy back products with old production dates, produce new products to re-enter the market, and rebuild the Rio brand.
"In addition, Rio itself also has problems with poor price control and chaotic channels," Liang Mingxuan also believes that Baorun Shares needs to solve these two problems.
- END -
China's best learning platform for FMCG distributors Focusing on providing professional, practical, and actionable tutorials for companies and distributors Committed to helping Chinese FMCG distributors grow rapidly
The most professional and practical knowledge base in the FMCG industry Reply with the red number below to get corresponding content Reply with number 1 to view the complete knowledge base | 001 Excellent article selection | 002 Distributor market operations | 003 Terminal visit management | 004 Sales supervisor skills | 005 Sales improvement techniques | 006 Channel expansion | 007 Managing distributors | 008 Distributor development | 009 Distributor internal operations management | 010 Team management | 011 Efficient distribution techniques | 012 Sales manager's 18 skills | 013 KA operation methods and strategies | 014 First lesson for new salespeople | 015 Internet, brand | 016 Distributor B2B transformation | [Long press QR code to follow]