---
title: "The Dividend of 'Lethal Big Wusu' Fades, Chongqing Brewery Hits Growth Bottleneck"
description: "Like the foam in beer, the secondary market seems to have overly high expectations for Chongqing Brewery's story. The previous one was the hepatitis B vaccine, and this time it's the 'premiumization transformation'. In the first half of 2022, the company's gross margin declined and its market value halved, as the growth of its high-end products, especially the Wusu brand, slowed down."
author: "李平"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2022-09-16"
language: "en"
canonical: "https://xinjignxiao.com/en/articles/the-dividend-of-lethal-big-wusu-fades-chongqing-brewery-hits-growth-bott-2a3f2caf/"
markdown: "https://xinjignxiao.com/en/articles/the-dividend-of-lethal-big-wusu-fades-chongqing-brewery-hits-growth-bott-2a3f2caf.md"
original_source: "https://mp.weixin.qq.com/s/ooqph_qrzqJaRFG_KjmneA"
translation: "https://xinjignxiao.com/zh/articles/%E5%A4%BA%E5%91%BD%E5%A4%A7%E4%B9%8C%E8%8B%8F-%E7%BA%A2%E5%88%A9%E8%A4%AA%E5%8E%BB-%E9%87%8D%E5%BA%86%E5%95%A4%E9%85%92%E9%81%87%E5%A2%9E%E9%95%BF%E7%93%B6%E9%A2%88-2a3f2caf.md"
attribution: "New Distribution — https://xinjignxiao.com/en/articles/the-dividend-of-lethal-big-wusu-fades-chongqing-brewery-hits-growth-bott-2a3f2caf/"
usage_policy: "https://xinjignxiao.com/ai-policy.txt"
---

# The Dividend of 'Lethal Big Wusu' Fades, Chongqing Brewery Hits Growth Bottleneck

> Like the foam in beer, the secondary market seems to have overly high expectations for Chongqing Brewery's story. The previous one was the hepatitis B vaccine, and this time it's the 'premiumization transformation'. In the first half of 2022, the company's gross margin declined and its market value halved, as the growth of its high-end products, especially the Wusu brand, slowed down.

Like the foam in beer, the secondary market seems to have overly high expectations for Chongqing Brewery's story. The previous one was the hepatitis B vaccine, and this time it's the 'premiumization transformation'.

**01 Gross Margin Declines, Market Value Halves**

On August 17, Chongqing Brewery released its 2022 interim report. Data shows that in the first half of 2022, the company achieved operating revenue of 7.94 billion yuan, a year-on-year increase of 11.16%; net profit of 730 million yuan, a year-on-year increase of 16.9%; and non-GAAP net profit of 716 million yuan, a year-on-year increase of 17.14%. From the product structure perspective, sales revenue from high-end products priced at 10 yuan and above was 2.88 billion yuan, a year-on-year increase of 13.33%; mainstream products priced at 6-9 yuan achieved revenue of 3.929 billion yuan, a year-on-year increase of 9.09%; and economy products priced below 6 yuan achieved revenue of 960 million yuan, a year-on-year increase of 11.55%. Comparatively, Chongqing Brewery's high-end products grew the fastest. However, compared with previous years, this growth rate still fell short of expectations. Data shows that in 2021, Chongqing Brewery's high-end brand beers, mainly Wusu, Carlsberg, and 1664, achieved sales revenue of 4.682 billion yuan, a year-on-year increase of 43.47%; sales volume increased by 40.48% year-on-year to 661,500 kiloliters, and high-end beer accounted for 35.69% of the company's revenue. In Chongqing Brewery's premiumization strategy, the rapid growth of the Wusu brand played a crucial role. Driven by the Wusu brand as a major product, the proportion of high-end products continued to rise. From 2019 to 2021, the revenue share of high-end products was 14.8%, 30.7%, and 36.5%, respectively, showing a continuous increase. High-end means high prices, and high prices mean high gross margins. In 2021, the gross margins of Chongqing Brewery's high-end, mainstream, and economy products were 61.74%, 46.20%, and 42.08%, respectively, with high-end products having a gross margin nearly 20 percentage points higher than economy products. The continuous increase in the proportion of high-end products significantly improved Chongqing Brewery's profitability. From 2019 to 2021, the gross margin increased from 41.69% to 50.94%. In comparison, Tsingtao Brewery's gross margin in 2021 was only 36.71%. However, in the first half of this year, Wusu beer's revenue growth slowed down significantly. According to research data from Cinda Securities, in the first quarter, Wusu sales volume outside Xinjiang grew by 19%, and in the second quarter, the year-on-year growth rate was only 6.3%, lower than market expectations. In addition, from the cost structure perspective, barley and packaging materials account for more than 60% of beer production costs, making the industry's profitability sensitive to raw material prices. Since 2021, prices of barley, glass, and aluminum have risen significantly. Previously, due to the optimization of the revenue structure, Chongqing Brewery handled cost pressures well, and gross margin maintained its growth momentum. In the first half of this year, due to the slowdown in high-end product growth, Chongqing Brewery's gross margin declined to 48.67%, down more than 2 percentage points from the full year of 2021 (50.94%). However, with the slowdown in high-end product revenue growth and the decline in gross margin, the secondary market has diverged on Chongqing Brewery's future growth prospects. Since the beginning of 2022, Chongqing Brewery's market value has shrunk by more than a quarter. As of August 24, Chongqing Brewery's stock price closed at 105.89 yuan, nearly halved from last year's high of 207.99 yuan. Over the past five years, Chongqing Brewery's average P/E ratio reached 52 times, much higher than the average level of the beer sector. Like the foam in beer, the secondary market seems to have overly high expectations for Chongqing Brewery's story. The previous one was the hepatitis B vaccine, and this time it's the 'premiumization transformation'.

**02 From 'Eating in the Dark' to a Hundred-Billion Market Value**

For secondary market investors, Chongqing Brewery is almost a myth of rebirth from adversity and a stunning reversal. Chongqing Brewery was first established in 1958, becoming the second Chinese brewery after Tsingtao Brewery, and was officially listed on the Shanghai Stock Exchange in October 1997. For a long time, Chongqing Brewery was a second-tier beer brand focused on the southwest. However, in the secondary market, Chongqing Brewery became the focus of many investors due to its hepatitis B vaccine research. On November 25, 2011, Chongqing Brewery's total market value reached 36 billion yuan, almost on par with Tsingtao Brewery's 40 billion yuan. However, on December 7, 2011, Chongqing Brewery disclosed the results of the Phase II clinical trial of the hepatitis B vaccine. The response rate comparison data showed that the vaccine was 'almost ineffective'. Subsequently, Chongqing Brewery experienced a tragedy of 'nine consecutive limit-downs' in its stock price. A netizen posted a post titled 'Eating While Crying' on the Chongqing Brewery forum, which became the origin of the meme 'eating in the dark'. On the evening of December 15, 2011, Chongqing Brewery announced that, given the termination of all research on the hepatitis B vaccine project, it decided to transfer the project to Mendel Gene for 1 million yuan. Data shows that since officially entering the hepatitis B vaccine project in 2018, Chongqing Brewery had invested over 100 million yuan in R&D expenses. After losing the halo of the hepatitis B vaccine, Chongqing Brewery returned to being an ordinary local beer producer. Moreover, as Tsingtao Brewery and China Resources Snow successively attacked the southwest stronghold where Chongqing Brewery relied for survival, its main business performance deteriorated significantly. In 2011, Chongqing Brewery achieved a net profit of 154 million yuan, a year-on-year decrease of 57.55%. Subsequently, the company's net profit remained around 160 million yuan for two consecutive years, and its stock price remained depressed due to poor performance. At this time, Carlsberg, which had already purchased Chongqing Brewery twice, saw an opportunity. In 2013, Carlsberg announced the acquisition of a 30.29% stake in Chongqing Brewery. Prior to this, Carlsberg had acquired 17.46% and 12.25% stakes in Chongqing Brewery in 2009 and 2010, respectively. Since then, Carlsberg's shareholding in Chongqing Brewery exceeded 60%, making it the absolute controlling shareholder. As one of the world's top five brewing groups, Carlsberg had long coveted the Chinese beer market. After gaining control of Chongqing Brewery, Carlsberg announced that it would use Chongqing Brewery as the sole platform for its beer assets in China. In December 2020, Carlsberg, the major shareholder of Chongqing Brewery, injected all its beer assets under its control in China into Chongqing Brewery. Since then, Chongqing Brewery formed a '6+6' combination of 'local strong brands + international high-end brands', including local strong brands such as Chongqing, Wusu, Xixia, Wind, Snow, Moon, Dali, and Jing A, and international high-end brands such as Carlsberg, Tuborg, 1664, Grimbergen, Brooklyn, and Somersby. At the same time, Chongqing Brewery's core sales markets expanded from Chongqing, Sichuan, and Hunan to Xinjiang, Ningxia, Yunnan, Guangdong, and multiple regions in East China, achieving a leap from a regional brewery to a national beer company. In 2021, Chongqing Brewery achieved operating revenue of 13.119 billion yuan, a year-on-year increase of 19.9%; non-GAAP net profit of 1.143 billion yuan, a year-on-year increase of 141.30%; in terms of sales volume, Chongqing Brewery achieved beer sales of 2,789,400 kiloliters, a year-on-year increase of 15.10%. In comparison, in 2021, the total output of breweries above designated size nationwide was 35.6243 million kiloliters, a year-on-year increase of 5.60%. Chongqing Brewery achieved a growth rate nearly three times the market average. Due to the continuous increase in the proportion of high-end products, Chongqing Brewery's gross margin improved significantly. Among the top five domestic beer companies, Chongqing Brewery's unit price and gross margin were second only to Budweiser APAC, much higher than China Resources Beer, Tsingtao Brewery, and Yanjing Brewery. In addition, Budweiser APAC's sales area covers Japan, South Korea, etc., with relatively higher expense ratios. Therefore, despite a lower price per ton of beer than Budweiser APAC, Chongqing Brewery's net sales margin still exceeded the latter by nearly 5 percentage points. Whether measured by net sales margin or return on equity, Chongqing Brewery ranked first among the top five domestic beer companies. Thanks to the rapid growth of the high-end market and good gross margin performance, Chongqing Brewery has been rising continuously since 2018. Among them, on July 21, 2021, Chongqing Brewery's stock price broke through 200 yuan, with a total market value reaching 98.2 billion yuan, just one step away from a hundred-billion market value. If the netizen who 'ate in the dark' had not chosen to sell Chongqing Brewery, they would have gained more than 10 times by then.

**03 The Glory and Hidden Worries of 'Lethal Big Wusu'**

The injection of high-quality assets from controlling shareholder Carlsberg brought a fundamental transformation to Chongqing Brewery's fundamentals. Among them, Wusu Beer is the most powerful. Especially in the past two years, Wusu Beer has become the vanguard of Chongqing Brewery's big product strategy and national expansion. Wusu Beer was founded in 1986, located in Wusu, Xinjiang, known as one of the world's three major hop-producing areas, and was fully acquired by Carlsberg in 2016. Compared with most low-priced beers on the market that are bland in taste, Wusu Beer has higher alcohol content and malt concentration, and after drinking, it has a strong aftereffect and easily makes people dizzy, hence many call it 'Lethal Big Wusu'. In terms of product pricing, Wusu Beer is positioned as high-end, priced at 8 yuan within Xinjiang and up to 12 yuan in eastern coastal cities. In terms of sales channels, Wusu is deeply tied to barbecue, night market, and other dining scenarios, and successfully became a hit through word-of-mouth marketing, becoming a popular internet-famous product with annual sales exceeding 1 billion bottles. Since it began to expand outside Xinjiang in 2019, Wusu Beer's national sales have seen explosive growth. In 2020, Wusu Beer's national sales increased by 27% to 620,000 tons, with sales inside and outside Xinjiang each accounting for half. In 2021, Wusu Beer's sales reached over 800,000 tons, a year-on-year increase of 34%. As early as the beginning of 2021, Li Zhigang, president of Chongqing Brewery, publicly stated that whether in terms of sales volume or revenue, Wusu had become the largest brand of Chongqing Brewery. Kaiyuan Securities believes that in the long run, Wusu is expected to become another high-end single product above one million tons after Budweiser Classic and Pure Draft series. However, overly high expectations often lead to a gap with reality. Compared with the nearly 30% growth rate in the previous two years, the growth of the Wusu brand slowed down significantly in the first half of 2022. Especially against the backdrop of intensifying competition in the high-end beer market, the development prospects of the Wusu brand will face a series of uncertainties. According to data from the National Bureau of Statistics, in 2021, the total output of breweries above designated size nationwide was 35.6243 million kiloliters, a year-on-year increase of 5.60%, which was also the first positive growth after eight consecutive years of negative growth in the beer industry. With the continuous shrinking of the main consumer group aged 20-45, the total demand in the domestic beer industry has peaked. In this context, since 2020, China Resources Snow, Tsingtao Brewery, and Yanjing Brewery have all launched multiple high-end brands. Focusing on the high-end market has become a consensus in the beer industry, especially the success of Wusu Beer has attracted deliberate imitation by competitors. In January this year, Tsingtao Brewery re-launched the 'Old Tsingtao' product in Qingdao, which was popular in the 1980s and 1990s, with a capacity of 640ml per bottle and a wort concentration of 12 degrees; on the other hand, Snow Beer also launched a 12-degree Shenyang Old Snow (640ml) beer product, priced at 10 yuan per bottle. Management guru Peter Drucker systematically discussed the seven sources of innovation in his classic work 'Innovation and Entrepreneurship', the first of which is 'unexpected success'. In Drucker's view, unexpected success often jumps out of our normal thinking patterns and discovers new business opportunities in what we take for granted. The innovation opportunities brought by such unexpected innovation have the least risk, which cannot be compared with any other source. In a sense, the popularity of Wusu Beer lies in the 'unintentional' creation of a new beer category of high-strength beer, which conforms to what management guru Drucker called 'unexpected success'. But in essence, the success of Wusu Beer has no substantial barriers. Its characteristics, such as high alcohol content (4%), strong potency (wort concentration 11 degrees), and large capacity (620ml per bottle), are easily imitated by competitors. As a foreign product, domestic consumers' trust in beer brands is far less than that in baijiu, and they tend to choose based on channel convenience and consumption habits. Therefore, as major beer companies launch high-end brands, and even products that imitate Wusu Beer at the pixel level appear, the difficulty for Wusu Beer to continue expanding naturally increases greatly. In the narrative logic of consumption upgrade and premiumization transformation in the beer industry, Chongqing Brewery has become the best illustration. But with the slowdown of the Wusu big product, can Chongqing Brewery's premiumization story continue to be told?

Source: Lishi Finance (ID: lishicaijing)


---

## Copyright and AI use

This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL.

Contact: zhaobo258@gmail.com · +86 158 5481 7671