A decade ago, the Olympic flame entered Yanjing Beer Group in Shunyi, Beijing, where Li Fucheng carried the torch with passion, completing an extraordinary torch relay in his life. As a sponsor of the Beijing Olympics, Yanjing Beer showcased a prestigious national brand at the grand event. "Da Lü Bangzi" (big green bottle) is a memory of many people's youth. I vaguely remember going to the corner store with a beer bottle to exchange for a new one at 1.5 yuan per bottle, or 2 yuan without returning the bottle. Today, Yanjing Beer no longer has the courage of its heyday, showing signs of decline, with weak performance and falling stock prices, gradually being pushed out of the first tier by China Resources, Tsingtao, and Budweiser. Early Start, Fast Run, but Lacking Stamina In the 1980s, Yanjing Beer began building its factory, with an annual output of only 10,000 tons. In the 1990s, Yanjing started to accelerate; under Li Fucheng's leadership, in 1999, Yanjing became the first domestic beer company to exceed 1 million tons in production. At the turn of the century, Yanjing expanded into the national market, reaching a peak in 2013 with revenue of 13.7 billion yuan and net profit of 680 million yuan. After the peak, it began to decline. In 2017, revenue was only 11.2 billion yuan, and non-GAAP net profit was -37.16 million yuan, the first loss in 20 years. This raises the question: what happened to Yanjing Beer's main business? In 2000, Yanjing Beer entered a rapid expansion phase, acquiring more than a dozen beer companies in Jiangxi, Shandong, Hubei, Guangxi, etc., extending its reach from North China to all over the country. The following decade was Yanjing's golden decade, with revenue growing from 1.745 billion yuan in 2000 to over 10 billion yuan in 2010. However, in 2012, Yanjing Beer failed to acquire Kingway, which was taken over by China Resources, capturing the Yangtze River Delta market. Since then, Yanjing has had no major moves in the capital market. Competition among domestic beer giants is like big fish eating small fish, fast fish eating slow fish. While Yanjing Beer stayed in its comfort zone, Tsingtao and China Resources continued to expand capacity and seize market share. Meanwhile, Budweiser, a beer giant that continuously strengthens itself through acquisitions, has never changed its ambition to compete for the top spot in the Chinese market. Due to years without major integration or M&A, Yanjing Beer remains positioned in regional markets such as Beijing, Inner Mongolia, Shandong, and Guangdong/Guangxi. Now that the beer market is largely divided, expanding against the trend is even harder, and its own strong markets are being eroded by giants, so performance naturally declines. Yanjing Beer's gross margin and non-GAAP net margin have been declining over the past three years. Below is a comparison of four A-share listed beer companies. Slow Transformation, Bloated Organization Yanjing is the only listed beer giant that has not introduced foreign capital. Lacking internal vitality, the drawbacks of a pure state-owned enterprise system are gradually emerging. To some extent, the state-owned system makes Yanjing's execution relatively conservative and passive, which is one reason why it is difficult for Yanjing Beer to expand aggressively nationwide. This is similar to Dong Mingzhu's obstacles in making cars and chips: if it works out, everyone is happy; if it fails, no one wants to take the risk. Yanjing Beer's reaction speed in the market and changes in marketing strategies are slower compared to other beer companies. Tsingtao Beer renews exclusive contracts through catering package agreements or sales incentives, and enhances brand influence through a "four-in-one" brand communication model. Zhujiang Beer accelerates market development by expanding barbecue stalls, increasing temporary promoters, increasing prize ratios, and dealer credit policies. In contrast, Yanjing Beer's actions in marketing strategy changes are not obvious or always a step behind. Yanjing Beer still suffers from overstaffing and low operational efficiency. Although Yanjing Beer's average salary is not high, it is not cost-effective relative to the revenue generated per employee. In 2017, Yanjing Beer's per capita revenue was less than half of Tsingtao Beer's and less than one-third of Chongqing Beer's, indicating that redundant personnel and low efficiency are also important reasons for high corporate costs. Overstaffing inevitably leads to increased administrative expenses. Yanjing Beer's administrative expenses are higher than Tsingtao Beer's, but Tsingtao Beer's total assets are nearly twice those of Yanjing Beer. Why does a relatively smaller company need more management costs? Moreover, from a performance perspective, such high management costs have not brought corresponding results. Low operational efficiency leads to inventory turnover days much higher than the other three companies, with no significant improvement in the past three years. Nearly 200 days of inventory turnover is almost four times that of Tsingtao Beer. Additionally, there are high-cost, low-efficiency R&D expenses. Yanjing Beer's R&D investment is also puzzling. In fact, the company invests heavily in R&D, ranking among the top in the industry, but with seemingly little effect. The company invests nearly 300 million yuan in R&D annually, yet its patent achievements are far fewer than Tsingtao Beer, which invests only about 10 million yuan per year. Moreover, in 2017, Yanjing Beer had as many as 1,369 R&D personnel, while Tsingtao Beer had only 51. Gross margin often reflects a company's management level. In 2014, a senior executive of a Yanjing Beer subsidiary was even imprisoned for embezzling over 40 million yuan. Although Yanjing Beer's scale is gradually falling behind, its business entertainment expenses are not small. Relevant statistics show that entertainment expenses totaled 54 million yuan over three years. Low Ton Price, Long Road to Mid-to-High-End Market Low prices mean small profits. With consumption upgrading, the price war of sacrificing quality for volume is fading. Tsingtao Beer's ton price is 3,260 yuan/ton, while Yanjing Beer's is only 2,413 yuan/ton. In comparison, Carlsberg's ton price is 5,254 yuan/ton, and AB InBev reaches 6,383 yuan/ton. Foreign beers are clearly much more expensive than domestic ones. After the board reshuffle in 2017, Li Fucheng retired and Zhao Xiaodong took over. Yanjing timely launched three high-end products—Ale, IPA, and Stout—to break through the dilemma. Yanjing clearly sees the space in the mid-to-high-end market, but the road is long; this is just the beginning. In the 2018 semi-annual report, Yanjing's revenue was 6.75 billion yuan, a year-on-year increase of 0.57%, barely reversing the decline. In the same period, China Resources Beer's revenue grew 11.4%, Chongqing Beer 10.9%, and Zhujiang Beer 9.15%. Yanjing is clearly a step behind again. Yanjing Beer's reputation and brand value are unquestionable, but in the face of declining performance in recent years, the company needs to reflect deeply, actively seek reform solutions, improve internal management, reduce internal friction, enhance R&D levels, and increase profitability, spending money wisely. Otherwise, it will be increasingly abandoned by the capital market. (Research support: LRN) Source: Delinshe (ID: delinshe) -END-