“We no longer look at low-alcohol drinks.” During a casual chat, Lu Bin, who works at a Beijing VC firm, brought up low-alcohol drinks. Suddenly, everyone realized that funding news for low-alcohol drinks has become rare. “At this year's juncture, the entire venture capital circle is strengthening its focus on tech investment, and categories like low-alcohol drinks have fewer chances to even reach the investment committee,” Lu Bin revealed. He said that his firm had discussed several low-alcohol drink projects last year, but this year the consumer team has completely stopped looking. Is low-alcohol drinks one of the first new consumer tracks to be abandoned? Low-alcohol drinks typically refer to alcoholic beverages with an alcohol content between 0.5% and 20% (some classify as 0.5%-15%), broadly including wine, yellow wine, beer, fruit wine, sake, premixed drinks, rice wine, and sparkling wine. Compared to the spiciness of baijiu, low-alcohol drinks are mainly sweet, thus attracting a host of young consumers. A year ago, low-alcohol drinks were still experiencing a golden period. According to incomplete statistics from Investment World, in 2020, there were 20 financing rounds in the low-alcohol drink track, and in 2021, it soared to 56 rounds, with total investment of about 2.5 billion yuan that year. Most of these low-alcohol drink brands that had just completed financing were established less than one or two years ago, and behind them were many top VC funds, making a grand spectacle. Among them, JOJO Sparkling Wine, WAT, Houxue Liquor, Fubixing, Zouqi Qingniang, Xuanbo Beer, Lanzhou, and RISSE Bar all received two rounds of financing in 2021 alone. MissBerry Berry Sweet even received three rounds of financing in one year, easily raising over 100 million yuan. The hotter it was, the lonelier it is now. Since 2022, investment and financing cases in low-alcohol drinks have dropped off a cliff. In investors' previous expectations, low-alcohol drinks had a chance to replace the baijiu market with the post-90s generation, but that scenario did not materialize. “It turns out that the logic of low-alcohol drinks replacing baijiu may be wrong; after the post-90s grow up, they will likely still choose baijiu,” Lu Bin lamented. 01 Last Year's Funding Frenzy “Are any peers still looking at low-alcohol drinks?” A year ago, the boom of low-alcohol drinks was still vivid. In Douyin live streams, with the countdown “three, two, one,” fans were ready to snap up products, and within just five minutes, hundreds of thousands of bottles of low-alcohol drinks were sold out. At that time, the low-alcohol drink industry was thriving. A VC investor friend excitedly cited a figure: it was predicted that by 2022, the market size of low-alcohol drinks would exceed 500 billion yuan. Tracing back, China's low-alcohol drinks were born in the 1990s. The pioneer of this track, Liu Xiaodong, founder of RIO cocktails, discovered while doing business in Shanghai's nightlife venues that his annual sales of flavors were less than the monthly sales of a set of cocktails in 13 nightlife venues in Shanghai. Liu Xiaodong immediately saw a business opportunity. He combined fruit juice and vodka to develop a new type of cocktail, and the first well-known low-alcohol drink brand in China was born. Liu Xiaodong's pioneering path was not smooth. After exploring channels in nightclubs and bars, repositioning to target young women, and a price war with Ice Power, starting in 2014, RIO finally captured the market through advertising placements in films and the variety show “Running Man,” cultivating a group of low-alcohol drink consumers. It was during those years that domestic low-alcohol drink enterprises began to sprout. This was an exceptionally hot track in the venture capital circle. Tianyancha data shows that there are currently over 115,000 low-alcohol drink-related enterprises in China. In terms of registration time, nearly 40% of low-alcohol drink-related enterprises were established within 5 years. Among them, 2016 and 2017 were peak years for the establishment of related enterprises, with over 1,500 new registrations each year. Starting from 2020, low-alcohol drink entrepreneurship became hot again, and an interesting phenomenon emerged: at that time, executives from the e-cigarette industry flocked to low-alcohol drinks. Similar to e-cigarettes, alcohol also has a certain addictive nature, so low-alcohol drinks became one of the strongest new consumer tracks. In 2021, the low-alcohol drink track saw its first IPO—Helens. Helens is a casual bar brand. In 2009, founder Xu Bingzhong opened the first Helens bar in Wudaokou, Beijing, with the first pot of gold earned from running a small bar in Laos. With the ultimate cost-performance of an average of 50 yuan per person for a night of drinking, Helens grew bigger and bigger. Using the small bar as an expansion model, Helens also offers consumers its own alcoholic drinks such as Helens craft beer, Helens fruit beer, and Helens milk beer. In September 2021, Helens officially listed on the Hong Kong Stock Exchange, rising nearly 23% on the first day, with a market value of HK$30.2 billion by the close of that day. Another hit that year was the green plum wine “Meijian.” In August 2019, the new baijiu brand Jiangxiaobai entered the fruit wine track and officially launched the green plum wine brand. What impressed investors was that in a live stream in 2021, Meijian sold 100,000 bottles in 5 minutes, and during the 618 shopping festival, Meijian's transaction volume on Tmall increased 8 times year-on-year, quickly becoming Jiangxiaobai's second battlefield. Many people still remember last year's scene: when new-style ramen shops and new-style bakeries were seeing hot financing, low-alcohol drink financing also showed a blowout. We roughly sorted out—In February 2021, the parent company of the soda wine brand “Kongka,” Houxue Liquor, added ByteDance's wholly-owned subsidiary Beijing Quantum Leap Technology Co., Ltd. as a shareholder. In March, the company added Suzhou Yuanchu Investment Partnership (Limited Partnership), which is held by Alibaba and Tencent, as a shareholder. From then on, Houxue Liquor's shareholders included the three internet giants ByteDance, Alibaba, and Tencent. There was also Berry Sweet. In May 2021, MissBerry Berry Sweet secured a Series A+ financing of 100 million yuan. Founded in 2019, Berry Sweet focuses on the relatively niche female low-alcohol fruit wine market, targeting women's drinking needs in different scenarios such as girls' gatherings and solo drinking at home. In just two years, Berry Sweet has received five consecutive rounds of financing, with support from investors including Matrix Partners China, Country Garden Venture Capital, and CBE Yuanfeng, with cumulative financing exceeding 100 million yuan. Following that was the supply chain for the low-alcohol drink industry. In August 2021, Fubixing completed a Series B financing of nearly 100 million yuan, led by Zhongding Capital. Fubixing was established in 2018, and founder Yang Zhe positioned the company as an industry-level new beverage supply chain service provider. Currently, Fubixing serves over 100 brands, including Zui'e Niang, Three Squirrels, Shanghai Guijiu, NetEase Yanxuan, KKV, and Gome. In addition, more than 50 brands, including “Luoyin” (focusing on Chinese-style tea fruit wine), premixed drink brand WAT, premixed sparkling wine JOJO, Z-generation-oriented Tayu fruit wine, low-alcohol sparkling fruit wine Belong, cider brand Hoopos, Hangzhou's new beverage brand “Meihuali,” innovative premixed drink “Lieqi,” and “Dayu Dengyu Jiu” (promoting a zero-fat, light-calorie health concept), all received financing between 2020 and 2021. This track was once crowded with investors. But entering 2022, as new consumer investment cooled, low-alcohol drinks seemed to become one of the first tracks to be abandoned. The number of financings for low-alcohol drinks visibly shrank. “In my impression, I haven't heard much about low-alcohol drink financing in the past 9 months,” the aforementioned investor lamented. Are there still peers looking at low-alcohol drinks? 02 Why Aren't Low-Alcohol Drinks Selling Well? Time for a Shakeout “Low-alcohol drinks aren't selling,” a low-alcohol drink entrepreneur once asked investors publicly: “The track seems very small now. Should we continue to persist?” Anxiety is gradually spreading to entrepreneurs. In the same beverage track, new-style tea drinks, sparkling water, and even yogurt still seem hot. On this year's 618 beverage and alcohol list, dairy products like “Renyang Yitou Niu” appeared, and coffee brands like Saturnbird and TASOGARE also made the list. Surprisingly, low-alcohol drink brands did not make it into the top ten. Why aren't low-alcohol drinks selling well? We might observe through a consumer. In the autumn of 2021, Liao Jie, who works in Shenzhen, saw carefully displayed low-alcohol fruit wines in a store while shopping. She was immediately attracted by the store's arrangement and the pink bottles, so she spent 12 yuan to buy a peach-flavored fruit wine. “I never thought I, who usually claims to reject consumerism, would be moved by a bottle,” she said. That bottle is still on the shelf in Liao Jie's kitchen, but after finishing the wine, her novelty wore off. “I haven't touched low-alcohol drinks since,” she said. This is not an isolated case—most people try it for novelty, and low repurchase rates remain a difficult topic for low-alcohol drinks. Multiple consumers in first-tier cities told Investment World that their first try of low-alcohol drinks was either recommended by friends or at casual gatherings, and most of the time they don't drink alone. In other words, low-alcohol drinks meet the social needs of some young people, but there aren't many who, after a tiring day, pour a glass to enjoy a “buzz” moment. “The usage scenarios for low-alcohol drinks are very limited,” a Hangzhou internet marketer found after long-term analysis. Young people rarely buy alcohol to drink at home, and gathering scenarios, excluding dormitories and rented rooms, are limited to dinner tables, bars, and less frequent outdoor activities. With other beverage options available, young people in these scenarios are not enough to support so many low-alcohol drink brands. There is even a joke that the growth of young users accepting low-alcohol drinks cannot keep up with the birth rate of low-alcohol drink brands. Any new thing needs a market cultivation process. In the past year, low-alcohol drink brands have sprung up like mushrooms, and there aren't enough young people to go around. Therefore, this nascent industry is becoming increasingly competitive. When a large number of low-alcohol drink brands divide a limited number of consumers, in order to retain old users and discover new ones, manufacturers focus on SKUs, launching various fruit-mixed flavors, and applying new consumer marketing cases to packaging and marketing. But the monotonous Japanese style has caused aesthetic fatigue. A rough survey shows that many consumers around us complain, “After drinking low-alcohol drinks so many times, I still can't tell who is who; they all seem to taste and look the same.” “Low-alcohol drinks are not that easy to make,” said Li Yun, a practitioner in the low-alcohol drink industry. Compared to the explosive growth of low-alcohol drink entrepreneurship, this industry seems to have a low threshold, but the brewing technology required in the early stages is much more complex than that of high-proof baijiu. Many companies that entered hastily lack such technology and equipment, and low-alcohol drinks made by adding water or using food flavors are at risk of being eliminated by the market. In addition, low-alcohol drinks are not easy to preserve, and the large amount of funds needed for supply chain construction and channel deployment can eliminate another batch of people. “Without at least 50 million yuan in funds, it's hard to build a low-alcohol drink brand,” one industry insider said. In discussions on Douban about avoiding pitfalls, some small breweries have incomplete supply and sales channels, often delaying shipments due to excessive order volume, and have been listed by consumers as “never buy again.” VCs' hesitation to act is also a signal. The market has started an elimination round, and the low-alcohol drink industry is beginning to reshuffle. Those who rushed in are likely to be out. 03 After All the Twists and Turns Young People May Eventually Drink Baijiu Chinese drinking culture has a long history and a vast market. Previously, VCs who favored the low-alcohol drink track often mentioned a viewpoint: with the rise of new consumer groups like the post-90s and post-00s, low-alcohol drinks are expected to replace adults' baijiu. It is worth noting how formidable China's baijiu industry is—just one company, Moutai, has a market value of 2 trillion yuan. “It turns out that the logic of low-alcohol drinks replacing baijiu may be wrong; after the post-90s grow up, they will likely still choose baijiu.” Returning to the initial scene, Lu Bin talked about why his team is still looking at baijiu. The reality is right in front of us: this year, low-alcohol drinks have cooled down, but baijiu still sees large financings. In March 2022, the sauce-flavored baijiu brand “Sishijiu Fang” completed a Series B+ financing. Before that, Sishijiu Fang had completed two rounds of financing last year, with investors including Cathay Capital, CMC Capital, and Chuangxiang Huanju Investment, with the Series B round raising as much as 600 million yuan. Founder Zhang Chuanzong once revealed that the company would complete its overall IPO during the “14th Five-Year Plan” period. The latest sensational case is that in early August, Nichu Capital completed an investment in the leading sauce-flavored baijiu brand Guotai Liquor, with an investment amount of several hundred million yuan. Guotai Liquor was established in 2001 and is the second-largest liquor company in Maotai Town. In 2021, its sales revenue including tax exceeded 10 billion yuan, and it has achieved revenue doubling for several consecutive years, quickly becoming a leader in the sauce-flavored baijiu segment. “The baijiu industry is a golden industry in the consumer goods field,” Chen Feng, managing partner of Nichu Capital, once shared the investment logic behind it: “Currently, a new round of technological revolution has bred unique trend-based investment opportunities of the era, and we also continue to pay attention to and be optimistic about baijiu, an industry that is timeless, unchanging, and unique to China. The baijiu industry is showing major trends of high-end, sauce-flavored, and consolidation, and the sauce-flavored baijiu category is ushering in a structural adjustment that occurs once in 20 years. Investing in sauce-flavored baijiu is equivalent to investing in 'friend of time'.” Why do investors instead favor baijiu? After extensive research, Lu Bin told Investment World directly: “Because what is still on the table today is baijiu.” Many low-alcohol drink entrepreneurs have mentioned one point: “As a new category, low-alcohol drinks have great growth potential, but the ceiling is too low, and the market is already saturated.” Baijiu is different. Data shows that in 2020, the cumulative sales of baijiu enterprises were about 590 billion yuan, and by 2022, the market size of the baijiu industry reached about 600 billion yuan, and it is still in an expansion period. “Even at the hottest time of the track, the sales data of low-alcohol drinks were not even a fraction of baijiu's.” “Young people who drink low-alcohol drinks will likely eventually switch back to baijiu,” multiple investors expressed this view unanimously. In essence, young people like low-alcohol drinks not only because of the attractive appearance and novel taste, but also because of their resistance to traditional drinking culture. The young group, mainly post-90s and post-00s, resents the “socializing” drinking culture where drinking determines friendships and orders, thus giving low-alcohol drinks the label of freedom and casualness. But from the perspective of consumer group evolution, young people will eventually become the core consumer group of baijiu. The core motivation for baijiu consumption is workplace and social pressure in business banquets and gift-giving scenarios, not personal drinking. Every generation faces social situations that mean modern young people also have the need to consume baijiu. “Moreover, after getting used to the taste of baijiu, young people will eventually try stronger-tasting baijiu due to the increase in threshold and the pressure of social scenarios.” “When young, one doesn't know the taste of wine.” In China's vast liquor market, low-alcohol drinks are more like a maverick youth subculture. And after all the twists and turns, young people may eventually reach the age of drinking baijiu. Note: Lu Bin, Liao Jie, and Li Yun in the article are pseudonyms.