In 2015, China's liquor industry did not undergo deep adjustment, leaving this problem for 2016. In 2015, national liquor production reached 13.12 million kiloliters, still showing an upward trend compared to 12.57 million in 2014 and 12.26 million in 2013, indicating that overcapacity has not been substantively addressed. Under the new normal of sustained economic downturn, consumer demand shows no signs of rebound. Moreover, recently, the Sichuan liquor camp, led by Tuopai, has entered a period of adjustment and turmoil, triggering a series of social issues. This foreshadows that in the remaining eight months of 2016, the baijiu industry may enter a normal adjustment phase, and a large number of baijiu enterprises may have to pay for old problems deferred from the previous year. Warning: Destructive Adjustments Will Occur Although baijiu is a storable product, extended inventory periods lead to large amounts of marketing capital being tied up, unable to effectively convert into cash flow. Moutai's inventory turnover days were 1,483 days in December 2012, but increased to 2,339 days in 2015, and it has been extending every year. Wuliangye's were 274 days in December 2012, increasing to 453 days in 2015. Even the top two baijiu companies are in this situation, let alone other brands. This indicates that the speed of delivering baijiu products to consumers' tables has significantly slowed, while warehouses continue to stockpile goods. The overcapacity crisis emerged as early as 2013, but it has not been taken seriously, nor has there been effective crisis warning. The entire industry still favors a moderate reform approach, with no one willing to undergo painful self-reform. The pool is being built higher and higher, leading to deeper accumulation of contradictions. Until the water overflows and the river bursts its banks, 2016 is the most dangerous year. For the baijiu industry, chain reactions can occur at any time, and a large number of enterprises will undergo a reshuffling process. Because this year has reached a critical point, both in terms of accumulated contradictions and the tightening macro-consumption environment. At the beginning of 2016, Moutai and Wuliangye began raising prices, subjectively intending to reverse the price decline around 2014, but this cannot provide substantive guidance for the entire baijiu industry. Baijiu is not a scarce commodity nor a luxury item, and the previous support from the political ecosystem no longer exists. The price increases by a few enterprises seem like a stimulant, and some media have hailed a rebound in the baijiu industry, but this is similar to the gatherings in the baijiu industry in 2013—a self-consolation within a small circle. It ignores the harshness of the macro environment and the overall market atmosphere. Although we know these are well-intentioned efforts to support the industry and hope for a quick recovery, they ignore that the macro economy is deleveraging. In the coming period, the overall economy will grow at a stable rate under the new normal, and high-premium products temporarily lack the soil to survive. In fact, the support from enterprises themselves or industry media lacks a comprehensive balance, a planned and step-by-step integrated support, and even more so, the support from non-industry forces such as economic, cultural, and market opinion leaders, making it impossible to form a strong consumer atmosphere. The reason is that brands are fighting their own battles without an industry-wide public relations campaign. They fail to effectively communicate and cooperate with consumer opinion leaders and word-of-mouth opinion leaders, ultimately leading to a decline and negative sentiment. Currently, the industry's adjustment still relies on the natural laws of the market. It relies on consumption leverage to drive changes within distilleries, but market leverage always has a lag, passivity, and reactivity. This passivity has already delayed the process for three years. These three years have numbed enterprises' sense of crisis. But the power of this leverage will eventually take effect and transmit to the enterprises with the weakest resistance in the baijiu industry, then, at some unexpected moment, trigger a domino effect, causing some enterprises to fall or suffer severe damage. At this time, every baijiu enterprise must be prepared for adjustment. Current Situation: Still Playing Games — True Self-Rescue vs. False Self-Rescue In March 2016, the Chengdu Spring Sugar and Wine Fair, the 94th industry gathering in China, was held. Meanwhile, Tuopai, one of the "Six Golden Flowers" of Sichuan, was engaged in intense negotiations between equity stakeholders and employee placement. Adjustments in individual enterprises were proceeding quietly. The Sugar and Wine Fair was still grand and solemn, but the biggest difference from previous years was that there were no impressive new products or outstanding achievements from enterprises. The 2016 Sugar and Wine Fair became the most superficial industry gathering. It turned into a conference of concepts: top-ranked enterprises mostly launched grand concepts, while unranked ones imitated them blindly. The official transaction volume announced at the 2016 Chengdu Sugar and Wine Fair was 23 billion yuan, compared to 22.6 billion in 2015. This number looks promising with an upward trend. However, from the perspective of industry bellwethers Wuliangye and Moutai, they only signed agreements with existing partners, and their annual reports showed only a slight 1% increase on paper. No one could see the previous trend of substantial growth. During this period, Wuliangye was absorbing distributor shareholdings, and Fenjiu was raising funds on the stock market. In Renhuai, out of over 1,700 distilleries, only about 300 were still producing. In the past few years, the baijiu industry has had many bright spots. In the previous two years, Jiangxiaobai, Wailanglang, and Luxiaoer were popular for a time with innovative approaches, but these brands' brief brilliance cannot support the recovery of the entire industry. Their scale is too small within the massive and bloated baijiu industry, and they have led the hope of recovery into a false illusion, causing many enterprises to flock to the dead end of relying on concepts. The adjustment of the baijiu industry began under various pressures at the beginning of the year, but this start still continues the industry's self-merger and improvement. Recently, the turmoil in Tuopai's restructuring reflects the complex mentality of baijiu practitioners regarding the balance between change and interests. Changes are indeed underway: at the beginning of 2016, Gujing Gong merged with Hubei Huanghelou, Wuliangye introduced a shareholding mechanism, and Jingjiu and Yanghe competed to invest in small and medium-sized distilleries across the country. However, this transformation still seems to be a game of musical chairs, moving from one place to another, and has not yet deeply addressed the root cause of the baijiu crisis—overproduction and product surplus. Drastic Adjustment Why in 2016? Currently, Moutai has proposed controlling volume and raising prices, and Wuliangye followed suit in early April, seemingly presenting a promising picture. But we still have sufficient reason to remind more enterprises to be cautious. This year is both promising and worthy of vigilance. Looking back at 2015, many provincial baijiu brands that were once well-known have survived to this day. In 2015, there were over 400 baijiu enterprises of various sizes in Liaoning, but this year, only fewer than ten brands remain recognizable, such as Laolongkou, Tiechashan, Daoguang Nianwu, and Fengcheng Laojiao. Henan has 461 registered baijiu brands, but currently, only a few can make an impact in the market, such as Jiuzu Dukang, Yangshao, Songhe, Shedian, and Zhanggong. Shaanxi had 101 baijiu enterprises in 2012, but by 2016, only Xifeng, Taibai, and Baishui Dukang can stand in the market; the rest have either disappeared or are struggling. Even Sichuan, a major baijiu province, cannot escape. Tuopai has just undergone a mixed-ownership reform that shocked the entire industry, with the placement of thousands of employees becoming the most sensitive point. Local authorities are also introducing guiding policies for local famous liquor enterprises to acquire, merge, and restructure backward enterprises. In 2016, a wave of capital for mergers and mixed-ownership reforms is highly likely to emerge. This year, China's economic situation is undergoing significant changes, with a large amount of capital shifting from real estate, urban investment, and financial investment. In 2015, the number of active funds in China exceeded 830, surpassing 424 in 2014, and is moving towards surpassing Australia and Japan. These active funds have also spawned millions of shadow funds in China seeking opportunities, and the Chinese baijiu industry is one of the targets. These funds are likely to become a huge driving force for the transformation of China's baijiu industry. But they are not there to save every baijiu enterprise; rather, they may seek brands that have the potential to survive or thrive in a round of reshuffling. The role these capitals play is to kill off those baijiu enterprises already on the brink. In the next decade, the macro economy needs to address structural issues. If this opportunity is not seized, capital's high leverage capability like in the past decade will be gone forever. Capital's eagerness to act is also to seize the last opportunity before the structural adjustment. The activity in the capital market will directly accelerate the reshuffling of the baijiu industry, because the opportunities that capital can target are limited: fixed asset investment, exports, and real estate are no longer viable. Capital favors enterprises that can survive or have potential, especially some promising baijiu brands, which may be bought at low cost by funds in the face of this impending wave. This will also lead to brands that cannot continue to compete finding no suitable way out and eventually being eliminated. In 2016, we cannot predict how big the transformation will be, but the transformation is indeed coming. Because the pool is indeed full, and if it cannot adjust itself, it must rely on this kind of destructive passive adjustment. Future: Will the Strong Get Stronger? The strong will always be strong. This is just a general market logic. It cannot be ruled out that many baijiu brands are currently undervalued, and some brands have grown under non-market factors. Therefore, the principle of the strong getting stronger applies to some enterprises, but it cannot be ruled out that in the future, a small ant might swallow an elephant. The reason is not that the ant has a big appetite, but that the ant has the genes to grow into an elephant. But this only applies to a portion of brands that are genuine and can withstand historical tests or future market operation models. Another trend in 2016 is that many small and medium-sized baijiu brands are forming alliances, building cooperative platforms while preserving capital and retaining valuable brands to the greatest extent. Perhaps there is still a glimmer of hope. Of course, the difficulty lies in the fact that these enterprises are used to fighting alone, and it is hard for them to break through their psychological barriers to form alliances like Sun Quan and Liu Bei did against Cao Cao. In addition to outside capital being restless, the top ten baijiu brands are also looking for opportunities to acquire regional brands. Besides Sichuan, Guizhou and Shandong have proposed directions for strong-strong alliances in baijiu mixed-ownership reform. But the industry's own overcapacity problem is still difficult to solve, and whether they can digest what they swallow is a big question. Regardless of the method, in 2016, under the influence of market leverage, passively eliminating overcapacity is an inevitable delay. If 2016 does not change, in 2017, countless baijiu enterprises will lose everything! Transformation like Tuopai's has become an inevitable trend: painful but unavoidable. Let us wait and see what exciting things will happen in China's baijiu industry in 2016! - END- The best FMCG distributor learning platform in China Focusing on providing professional, practical, and applicable tutorials for enterprises 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 the 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 Eighteen Skills | 013 KA Operation Methods and Strategies | 014 First Lesson for New Salespeople | 015 Internet, Brands | [Long press QR code to follow]