On the evening of January 11, Baorun Co., Ltd. (002568) issued a revised annual earnings forecast for 2015. The company expects net profit attributable to shareholders to increase 60%-90% year-on-year, ranging from 459 million to 545 million yuan, significantly below the previous forecast of 717 million to 861 million yuan (150%-200% growth). Pre-mixed cocktail business faced troubles in Q4 In the announcement, Baorun stated that the main reasons for the forecast revision are the following factors affecting the subsidiary's pre-mixed cocktail business in Q4:

  1. After the explosive growth before early 2015, the pre-mixed cocktail business entered a temporary plateau phase, requiring consolidation and preparation for the next stage of development. During this plateau, the seasonal characteristics of pre-mixed cocktail consumption became more apparent. Similar to beer and other low-alcohol beverages, where Q4 sales account for a relatively low annual proportion, Q4 sales of pre-mixed cocktails also accounted for a lower annual share, reflected in a significant quarter-on-quarter decline in the subsidiary's pre-mixed cocktail revenue.
  2. Meanwhile, the subsidiary continued its aggressive market strategy in Q4, investing expenses as planned, with major expenses increasing quarter-on-quarter compared to the first three quarters. Employee compensation rose significantly due to year-end bonuses; activity and marketing expenses also saw substantial increases. Since Q4 2015, channel research indicates that pre-mixed drinks are beginning to exhibit beer-like off-peak seasonality. Terminal sales declined notably in Q4, inventory remained under pressure, and the company's expenses increased significantly, leading to a loss in Q4. In response, Hu Yanchao, food and beverage industry analyst at Zhongtai Securities, believes that the channel shift to terminals did not digest inventory as expected, and the decline in popularity along with beer-like seasonality are the main reasons for the lower-than-expected performance: (1) Inventory pressure shifted to terminals in Q4, but terminal prices fell rather than rose, with promotions appearing in some supermarkets like Walmart; (2) Terminal sales stagnated, with production dates in first-tier cities typically from May-July 2015 and in second-tier cities from March-May 2015, indicating poor terminal product digestion. At the company level, in H2 2015, to alleviate distributor inventory pressure and consider the off-season, the company significantly reduced pre-mixed drink shipments in Q4, also contributing to the lower-than-expected performance. Baorun adopts three strategies to maintain leadership in pre-mixed drinks Facing these challenges, Baorun stated that based on confidence in the medium-to-long-term development of the pre-mixed cocktail market, management has implemented proactive and optimistic business strategies: (1) Maintain an aggressive market strategy; (2) Maintain healthy channel inventory; (3) Maintain good cooperative relationships with all distribution channels. Baorun stated that its management firmly believes that China's pre-mixed cocktail market has vast potential. As the leading enterprise in the industry, the subsidiary's "RIO" brand pre-mixed cocktails enjoy strong brand awareness and recognition, with clear first-mover advantages. In the medium-to-long term, the subsidiary's pre-mixed cocktail business still has good development prospects. Where is the pre-mixed drink market heading in 2016? Regarding the troubled RIO pre-mixed drinks, Hu Yanchao said that in the short term, marketing improvements are expected, hoping to leverage the 2016 Olympics marketing opportunity for a second takeoff. 2016 is a major sports year, and the Rio Olympics present a great opportunity for the company. It is hoped that RIO pre-mixed drinks can ride the Olympic wave for a second takeoff. The company's marketing system is highly flexible. The earlier "Running Man" brought RIO significant popularity, but due to the audience of "Day Day Up" and the influence of variety shows, RIO did not achieve the expected heat, and cooperation with "Day Day Up" has been terminated. In 2016, the company is expected to continue replicating the success of hit dramas like "My Sunshine." In the long term, channel penetration into third- and fourth-tier cities is the main growth point. The expansion of catering channels and e-commerce efforts still need to be tested. RIO's KA channel revenue share remains high, with a traditional channel distribution team of 3,000 people, covering more channels than all other pre-mixed drink brands combined, a clear advantage. However, traditional channels only reach 30% of Coca-Cola's coverage, and third- and fourth-tier cities and county towns are not yet stocked, leaving significant room for channel penetration. Continued channel deepening remains a key driver for sustained growth. Catering channels account for 40% of alcohol sales, but the company's catering channel expansion is just beginning, and results will take time. Additionally, in 2016, the company will increase e-commerce investment, making e-commerce construction one of its future strategies. E-commerce can leverage the long-tail effect of product sales, but whether it suits pre-mixed drink sales remains to be seen. Huang Wei, an analyst at CITIC Securities, believes that the colorful and fashionable consumption wave of pre-mixed drinks will bring new sales records for related companies during year-end promotions. First, comparing international experience, China's pre-mixed drink market still has broad prospects. In 2014, Japan's per capita consumption of pre-mixed drinks was 6.68 liters, and the UK and US exceeded 2 liters, while China's per capita consumption was only 0.087 liters, just 1.31% of Japan's, indicating significant growth potential. Second, compared to traditional alcoholic beverages, pre-mixed drinks feature youthful packaging, convenience, and diverse flavors, appealing to young consumers. In recent years, with the rise of the post-80s and post-90s generations, pre-mixed drinks have experienced rapid growth. As these generations become the main consumer group, pre-mixed drinks are expected to continue seeing consumption booms. Third, the year-end is the traditional peak season for alcoholic beverages. During the New Year holiday, RIO's Tmall flagship store increased discounts, launching a New Year special gift box (72 yuan) containing six RIO mixed-color bottles, endorsed by Yang Yang, Guo Caijie, and Deng Chao, with four gift box designs to choose from, plus a cute bottle opener and movie tickets. Bacardi launched the "Roll, Year-End Bonus" special plan, offering 8-bottle sets (69.9 yuan) and 16-bottle sets (139.8 yuan) at value prices, along with special offers on popular products like Martini and white rum. We expect that with the year-end promotion boom, pre-mixed drinks will see rapid growth. Source: Huaxia Wine News -END- Featured Content Reply with the following keywords to search and read related articles: Sales Supervisor, Second-Tier Management, Regional Manager, Distributor Management, New Channels, City Manager, Competition, 2015, Manufacturer-Dealer Game, Product Stagnation, Terminal Visit Management, Route Management, Deep Distribution, Internal Management, Sales Skills, Profit Improvement, Recruitment, Distribution, Daily Management, Team Motivation, Trade Promotion, Sales Misconceptions, New Product Launch, Township Market, New Product Pricing, Sales Target Achievement, Closing, Market Visit Inspection, Baijiu, Beer, Sales Increase, Agency Products, Cross-Region Sales, KA, Terminal Merchandising, New Market, Market Operation, Learning, Book Recommendations, Inventory Management, New Salespeople, Consumer Promotion, Execution, Old Products, Expired Product Handling, Model Market, Franchise Recruitment, New Media, Distributor Development, Performance Appraisal, Assessment, Annual Planning, Shopping Guide, Morning Meeting, Display, Transformation, Stock Pressure, Holidays, Distributor Cost Control, Channel Operation, Marketing Theory and Laws, Brand Truth, Order Meeting, Team Management, Training, Debriefing, Work Report.