Statistics show that 15 listed baijiu companies, including Kweichow Moutai and Yibin Wuliangye, all reported negative net profit growth in the first half of the year. The overall decline in net profits in the interim reports of these 15 companies reflects the current state of the baijiu industry, which continues to shrink and remain sluggish. This has brought significant adverse effects to traditional baijiu distributors, with some still enduring in agony, some suffering severe losses, and others unable to sustain their operations and forced to transform.
As early as the first quarter of this year, Yinqi Group, the largest distributor of Wuliangye, once again delivered a huge loss annual report. For the fiscal year ending March 31, 2014, Yinqi Group recorded an annual loss of HK$788 million. The company had already been deeply in loss the previous year, with a loss of HK$1.134 billion in fiscal 2013. In response, Yinqi Group explained that due to the slowdown in China's economic growth and the continued impact of multiple government austerity policies, the high-end baijiu sector continued to adjust. At the same time, high inventory levels in distribution channels led to a significant decline in terminal retail prices for high-end baijiu. As a baijiu distribution company with a product portfolio concentrated in the high-end segment, this had a major adverse impact on Yinqi Group's operational performance. The industry environment and policies were the main causes of the losses, but this also exposed the shortcomings of Yinqi Group's product management.
As the Mid-Autumn Festival approached in September, many specialty store and tobacco & liquor shop owners in Beijing did not feel the usual festive atmosphere. Many specialty stores had very few customers and closed early, before 6 p.m. Many distributors still had high-end baijiu inventory that had not been sold, and prices had shrunk by more than half. Selling at these prices, they complained they would lose heavily. According to distributors, high-end products such as Feitian Moutai and Wuliangye had not seen price increases during festivals since last year. Based on purchase prices of over 800 yuan, the profit per bottle was only about 50 yuan. Many small agents could not even cover their rent and could no longer sustain their operations.
However, the current market situation shows that both large and small distributors were caught off guard and are having a hard time, which objectively reveals their deficiencies in product system management. Despite the extremely unfavorable environment, many traditional baijiu distributors are persisting. Unable to change the status quo, they choose to start by changing themselves. Products are the foundation of a distributor's survival. A systematic and rational product management can help distributors gain profits and development guarantees. Facing the current harsh liquor environment, Mr. Zheng, a baijiu distributor in Wuhan, began to sort out his product system at the beginning of the year to strengthen product management and implement strict management mechanisms. "Baijiu isn't selling, consumer enthusiasm is low, but demand still exists. Through this series of cautious measures, I have achieved stratification in products, markets, and audiences, and my sales methods are also targeted, which effectively drives product flow," Mr. Zheng said. During this market visit, the author had an in-depth discussion with Mr. Zheng and summarized the baijiu distributor product management mechanism—the 5M method—which manages the product system efficiently, comprehensively, and holistically from the following five aspects.
- Product Selection Mechanism: How to Introduce Products Correctly and Effectively.
For distributors, the key factor determining sales performance is which products you choose to represent. The current baijiu industry is in an era of high homogenization, with products, packaging, and concepts highly similar, though there are also some innovative products. When choosing which products to represent, you must start from your own reality, combine it with local market conditions, and select appropriate products. You must remember the following two points.
Do not follow others blindly or go with the flow. In baijiu products, you must not easily accept recommendations from salespeople or others, nor should you look for products just because the market seems good. Consumers will tell you what products are needed. You must calmly observe the market and audience needs to make reasonable introduction decisions.
Do not go against the market trend or chase hot products. In 2013, two trends swept the baijiu industry: one was "pro-people," with many liquor companies targeting the mass market and focusing on mid-to-low-end products; the other was "small bottles," with a frenzy of small-bottle products emerging. However, looking at the current market, small bottles seem to be a flash in the pan, while the pro-people route is the current mainstream. Mr. Zheng saw the trend of returning to civilian liquor and the popularity of local liquor, so he focused on promoting mid-range Hubei liquor and won the market.
- Product Inventory Mechanism: How to Establish Healthy Turnover.
The 1.5x safety stock rule is a common inventory management method in marketing. However, for the current baijiu industry, you can completely ignore losses from stockouts or shortages; the core concern is avoiding overstocking. Keeping products in your own warehouse is the biggest risk and the biggest disaster for current baijiu distributors. Liquor companies have severe overcapacity and large product inventory backlogs, and they are using various means and policies to tempt distributors into stocking up. At this time, distributors need to stay vigilant, resist pressure from companies, and ensure healthy inventory and product turnover. The author suggests that during the baijiu winter, distributors should ideally achieve zero inventory, with products going directly to consumers.
For products that sell quickly, distributors can maintain a maximum of 1x inventory to meet normal sales demand. For large bulk group purchase orders, they can draw from downstream channel warehouses or regional company warehouses. Special times call for special measures. For inventory turnover, distributors need to regularly organize data, arrange personnel to patrol terminals, and promptly obtain sales information from downstream channels. First-in, first-out is the basic principle. Mr. Zheng implemented unified inventory management in his regional market, arranged reasonably, and implemented a reservation strategy, effectively controlling his own and downstream channel inventory and driving product turnover.
- Product Positioning Mechanism: How to Align with Market Demand.
Baijiu products need to be sold to consumers. Positioning here mainly refers to two aspects: product function and product price. There are many baijiu products, and the functions of high, medium, and low-end products differ. For example, mid-to-high-end products are more suitable for gifting and entertaining, while mid-to-low-end products are more for gatherings, and there are also banquet wines for weddings, birthdays, etc. In terms of product price, mid-to-high-end prices are suitable for urban markets, while mid-to-low-end prices are suitable for county and township markets. Based on these two aspects of product positioning, segment the market and audience, and classify your products according to market conditions: which are profit products, which are volume products, and which are group purchase products. Through this structured construction, improve the product portfolio and drive the rational sales of the entire product group. Mr. Zheng used this to classify his product structure, mainly pushing mid-to-high-end products to urban areas, mid-to-low-end products to county and township markets, and festive wines focusing on banquet orders.
Consumers have selective awareness, so product positioning also includes precise communication and promotion, and appropriate promotional activities. When purchasing products, audiences pay attention to brand, product, origin, and quality. Therefore, during the off-season, you can use appropriate promotions to drive sales of mid-to-low-end products, and during the peak season, use strong promotions to focus on mid-to-high-end products. As for large-scale advertising support, distributors need to communicate with manufacturers in a timely manner to improve or adjust operational strategies.
- Product Distribution Mechanism: How to Control Deep Channels.
Product system management is not only about the distributor itself; managing downstream distribution channels is also an important process. In the past, the model of large distributors distributing layer by layer was supported by high profits. Now, with shrinking profit margins and large distributors accumulating inventory, their enthusiasm has decreased. Many downstream distributors have abandoned baijiu agency and switched to other products. Moreover, many listed companies, to consolidate their performance, have adopted threshold-lowering strategies, extending their channel reach to county and township levels and courting small distributors. For example, as of the end of August this year, 79 county-level distributors from across the country signed agreements with Moutai to open specialty stores in county markets. This poses a challenge for distributors in managing their distribution channel network and also a challenge to their own survival.
How to consolidate and maintain the overall distribution channel and better control deep sales? This requires distributors to consider problems for distributors and retailers and help downstream channel partners solve practical issues. For example, product display and visibility, promotion design and execution effectiveness, building terminal customer relationships, etc., fully implement product sell-through work, and distributors should inspect and summarize.
Currently, baijiu e-commerce is booming, with first- and second-tier liquor companies joining in, bringing opportunities for distributors. The industry is also discussing the feasibility of distributors doing e-commerce. But for distributors, whether to do e-commerce channels, whether it is worth developing, whether to open a store or build a platform—from a future development trend perspective, you can start by opening a micro-store or seeking e-commerce cooperation, and later develop towards a distributor-exclusive platform.
- Product Assessment Mechanism: How to Reasonably Eliminate and Retain.
Distributors generally represent many different series and specifications of products. However, among these products, 20% determine 80% of the profits, while the remaining 80% often only bring 20% of the profits. Therefore, distributors must have a reasonable assessment mechanism for the products they represent, forming a benign market elimination system. Distributors should set assessment cycles and conditions, such as quarterly, semi-annual, three-quarter, or annual reviews based on product sales volume or profit. Products that meet the standards are retained, while those that do not are eliminated and replaced.
At the same time, for retained products, resources must be optimally allocated. Focus on main sales products with concentrated advantageous resources for full promotion. For products requiring manufacturer support, respond quickly, apply in a timely manner, and seize market opportunities. If introducing new products, consider the profits of downstream distributors; also, expand sales channels as much as possible; and do a good job in sales service. This requires distributors to maintain communication with liquor companies, strictly estimate costs, comprehensively evaluate whether the product is worth doing, and then make decisions.
In the future, the baijiu industry will definitely belong to the era of large enterprises and large distributors, but everyone must pass the test of this winter's reshuffle. Surviving this difficult period means entering a new development phase. Currently, the primary task for distributors is survival, which requires ensuring their own healthy operation, and the key is to do a good job in product system management.
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