Yellow wine is one of the oldest types of wine in the world, originating in China and unique to it, alongside beer and wine as the world's three great ancient wines. About 3,000 years ago, during the Shang and Zhou dynasties, the Chinese invented the unique method of multiple fermentation with yeast, and began mass-producing yellow wine.
On November 7, the 22nd Yellow Wine Festival and Yellow Wine Industry Summit was held in Shaoxing, Zhejiang. This industry, which insiders consider severely undervalued, has held many summits yet remains undervalued, which is indeed thought-provoking.
Almost every country or nation has a representative alcoholic beverage that embodies its ethnic character and is regarded as a symbol of identity. However, yellow wine is still far from achieving a similar status among the Chinese people.
I. Three Major Old Problems in the Yellow Wine Industry
1. Small Industry Scale, Lack of Prominent Benchmarks
In 2015, the yellow wine industry saw a slight recovery, with an estimated industry size of around 50 billion yuan. The overall scale is small, and the industry's growth potential is weak, so it has always been less attractive to capital.
Market size and growth rate of China's yellow wine industry from 2007 to 2015 Sales volume and growth rate of China's yellow wine industry from 2007 to 2015
The three listed yellow wine companies have had annual revenues hovering around 1 billion yuan for years, with little difference between them, and relatively low pressure from both external competition and internal operations.
Three Leading Yellow Wine Enterprises:
Guyue Longshan: The first listed company in China with yellow wine as its main business. In the first quarter of 2016, revenue grew rapidly by 18%. It is the oldest national enterprise, owning two well-known brands both domestically and internationally: Guyue Longshan and Nü'er Hong. Currently, the proportion of yellow wine revenue from Jiangsu and Zhejiang has dropped from 90% twelve years ago to 60%. The company has laid out and begun expanding its domestic yellow wine sales. Additionally, its state-owned enterprise reform is also worth anticipating.
Kuaijishan: Has the most extensive yellow wine sales channels in China. The company is continuously upgrading its product structure. Currently, "Kuaijishan Pure Five Years" is the largest-selling single product in the yellow wine market. In recent years, it has acquired several yellow wine enterprises in Jiangsu and Zhejiang, aiming to strengthen and expand its yellow wine business.
Jinfeng Wine: The company's total profit and sales profit from yellow wine are higher than Guyue Longshan's, and it has an annual production capacity of 220,000 tons. The company has divested non-yellow wine businesses (including Guangxi Shangshang Sugar and Shanghai Mengniu Dairy equity) to focus on yellow wine as its core business. It currently owns two major brands: "Shimenku" and "Hejiu".
2. Narrow Main Sales Regions, Weak Willingness to Expand
The main production and sales regions for yellow wine have always been Zhejiang, Shanghai, and southern Jiangsu. In recent years, the three companies have made little effort in national expansion, seemingly reaching a "tacit agreement."
3. Aging Consumer Base, Few Innovations
Yellow wine faces a more serious problem of "aging consumer base." Jinfeng once stood out from the "low-end, Zhejiang-style" camp with its "Shanghai-style fashionable yellow wine," but its innovation performance has been mediocre in recent years.
II. Huge Development Potential for Chinese Yellow Wine
1. Revenues of the Three Major Yellow Wine Listed Companies All Increase
From January to September, revenues of the three major listed companies all increased
The third-quarter report of leading yellow wine company Guyue Longshan shows that from January to September 2016, it achieved operating revenue of 1.121 billion yuan, a year-on-year increase of 16.83%, and net profit attributable to shareholders of the listed company of 95.89 million yuan, a year-on-year increase of 12.35%. Notably, Guyue Longshan's net profit excluding non-recurring gains and losses in the first three quarters reached 86.18 million yuan, already exceeding the full-year 2015 net profit excluding non-recurring gains and losses of 85.62 million yuan. This shows that Guyue Longshan's main business profitability is on a clear recovery trend.
Meanwhile, the third-quarter reports of the other two major yellow wine companies, Kuaijishan and Jinfeng Wine, also show certain growth in revenue. Kuaijishan's third-quarter report indicates that from January to September this year, Kuaijishan achieved revenue of 599 million yuan, a year-on-year increase of 7.85%; net profit attributable to shareholders of the listed company was 74.08 million yuan, a year-on-year increase of 3.75%. Jinfeng Wine achieved revenue of 753 million yuan from January to September this year, a year-on-year increase of 7.32%; net profit attributable to shareholders of the listed company was 55.07 million yuan, a year-on-year decrease of 0.29%.
From the main performance indicators in the third-quarter reports of the three major yellow wine listed companies, only Jinfeng Wine's net profit declined slightly, while the main indicators of the other two companies showed growth. This is a phenomenon not seen in the first three quarters' performance reports of the yellow wine sector in recent years. The rise in performance indicates that the yellow wine sector has seen some improvement at the market level.
Collective Price Increases This Year to Boost Profits and Confidence
At the beginning of this year, led by Guyue Longshan, the entire yellow wine industry saw a wave of price increases. Guyue Longshan alone raised prices three times in the first half of the year, with increases ranging from 5% to 10%. The products with price increases were mainly the Guyue Longshan Gold Three Years and Gold Five Years series, as well as some jarred and customized products. The products involved in the price increases amounted to 220 million yuan, accounting for about 45% of the company's 2015 revenue.
Guyue Longshan raised prices three times in a row, and its old rival and neighbor Kuaijishan was not to be outdone. On the evening of May 26 this year, Kuaijishan announced price increases for some of its products. The announcement stated that based on current market conditions and product supply and demand, Kuaijishan decided to raise prices for some products starting June 1, 2016. Subsequently, Kuaijishan Pure Five Years, ordinary jar wine, Dongfeng series yellow wine, and liquor saw price increases ranging from 5% to 20%. The products involved in the price increases had sales of 562 million yuan in 2015, accounting for 61.4% of Kuaijishan's revenue.
In addition, shortly after Guyue Longshan and Kuaijishan announced price increases, Jiangsu Shazhou Youhuang, ranked in the top five in the yellow wine industry, also announced price increases for its core products, with an increase of 7%. Shazhou Youhuang's sales growth rate in 2015 was around 9%, and its annual economic benefits ranked among the top two in China's yellow wine industry.
Low profit is a chronic problem in the yellow wine industry. Annual reports show that last year, the net sales profit margins of the three major listed companies were roughly: Guyue Longshan 9%, Kuaijishan 12%, and Jinfeng Wine 7.3%. Such profit margins clearly cannot support the development needs of enterprises. As leading enterprises in the yellow wine industry, Guyue Longshan and Kuaijishan both stated in their 2015 annual reports that the trend of product upgrading in yellow wine would become more evident. Through product upgrades, the yellow wine industry has gradually moved away from the low-margin development model that relied solely on "winning by volume" and has begun to expand into high-margin development models that pursue high-quality, high-price market segments.
"The two companies raised prices to increase prices and profit margins, and also to boost confidence in the entire industry," a middle-level manager at a listed Shaoxing yellow wine company told reporters in an interview. He also pointed out that this year, famous liquor brands have frequently raised prices. If leading yellow wine companies like Guyue Longshan and Kuaijishan remained inactive, it would be a huge blow to the entire yellow wine industry. This middle-level manager said that this year's market environment for yellow wine is better than in previous years, providing basic conditions for price increases. Huang Tingming, chairman of Jiangsu Zhangjiagang Brewing Co., Ltd. (Shazhou Youhuang), also stated that this round of price increases has reasons related to economic laws and consumer factors. The gradual return of yellow wine's value has stimulated market development and boosted corporate confidence.
2. Huge Growth Space for Yellow Wine
Since 1994, the national alcoholic beverage (including alcoholic drinks) market has grown at an average annual rate of about 9%. Based on this average growth level, yellow wine should have room to increase production by 120,000 tons annually.
Alcohol consumption is a "luxury" (i.e., non-essential) beyond basic living needs. Its consumption level and volume should be directly related to national consumption levels. In the past five years, the growth rates of national GDP and total retail sales of consumer goods were 7.64% and 10.02%, respectively, which is basically consistent with the national average annual growth rate of 9% for alcoholic beverages in recent years. This confirms the synchronization of alcoholic beverage consumption with national economic growth. Similarly, data shows that alcoholic beverage consumption in developed countries is significantly higher than that of domestic residents (domestic per capita annual consumption of alcoholic beverages is 25 kg, while in developed countries, wine consumption is 21 liters per person per year, and beer consumption averages 25.3 liters per person per year worldwide, totaling 46.3 liters per person per year, nearly double). This is directly related to the income gap between the two. Therefore, it is entirely possible for yellow wine, as part of alcoholic beverages, to maintain growth in proportion to the national economy.
3. Huge Market Potential for Yellow Wine
(1) The development of yellow wine is an inevitable market reflection. Currently, among the mainstream alcoholic beverages such as liquor, beer, wine, and yellow wine, yellow wine's consumption heat is relatively lower. Wine, which has only recently become popular in the past decade, has also spread to almost all alcohol consumption corners. Looking at the development history of all alcoholic beverages, there are trajectories of boom and bust. As one of the world's three ancient wines, with a civilization history of nearly 4,000 years (over 2,500 years with written records), it will surely display its unique charm. Its further development will be an inevitable market reflection.
(2) Yellow wine is an inevitable demand for health and wellness. Alcoholic beverages, like other commodities, must adapt to consumption trends. In the United States, functional alcoholic beverages have doubled in the past four years, clearly an international trend. The rapid development of domestic health wines, nutritional wines, and other functional wines also confirms this, such as "Jingjiu," "Wujiapi," and "Hejiu" successively appearing. Especially after entering the 21st century, the rapid development of information technology such as the internet has accelerated social material civilization progress. Health and wellness concepts have formed. World political leaders and industry giants have taken the lead in tasting yellow wine, sparking a yellow wine craze worldwide. Therefore, experts predict that the 21st century will definitely be the era of health-oriented wines. It is an inevitable result of people's pursuit of health and wellness, an inevitable reflection of people's material life, and an unstoppable life trend. Yellow wine is the preferred choice.
(3) Restrictions on the liquor industry have increased the development space for yellow wine.
Given the harm of high-alcohol liquor to human health, after the 1990s, China introduced a series of policies to "restrict the development of high-alcohol liquor and encourage the development of fermented and low-alcohol wines." Under this policy, starting in 1996, the State Council stipulated that all ministries and commissions were strictly prohibited from using liquor for official banquets. As a result, in 1998, Shaoxing wine replaced Moutai in state banquets. In February 1998, relevant national departments jointly issued a document requiring the cleanup and rectification of liquor enterprises, deciding to implement a production license system for liquor enterprises, strictly control liquor imports, and no longer arrange for any liquor enterprise to expand production scale. The "Tenth Five-Year Plan" also clearly stated that China's alcohol industry would focus on adjusting the product structure, driven by reform, opening up, and technological progress, with the basic starting point of meeting people's needs for alcoholic products, developing towards high quality, low alcohol content, multiple varieties, low consumption, high efficiency, and no pollution. Based on this industrial policy, the state again introduced a series of policies restricting liquor production and encouraging the development of low-alcohol, nutritious wines. This is undoubtedly a heavy blow to the liquor industry. The huge market space left by liquor contains enormous market potential for the yellow wine industry. It is also because yellow wine has low alcohol content and health benefits that it can inherit the potential market of liquor.
From the perspective of the inheritance and development of Chinese wine culture, we deeply sympathize with the current industrial situation of yellow wine. We hope that consumers and industry distributors can give yellow wine more attention and care. Indeed, some distributors do believe that yellow wine is a gold mine awaiting further exploitation. After all, yellow wine is the oldest type of wine in Chinese history, most closely related to Chinese wine culture, and best represents the character of Chinese culture and the personality of Chinese people. In fact, many people already hold similar views and are full of expectations for yellow wine. The Zhejiang Provincial People's Government also regards yellow wine as one of the industries to be strongly supported and issued the "Guiding Opinions on Promoting the Inheritance and Development of the Yellow Wine Industry" in 2015.
But in comparison, the improvement of yellow wine still seems to lag behind the speed we expect. "Helplessly, flowers fall; familiar swallows return; alone on the garden path, I linger." During the process of consumption upgrading, fermented wines seem to have more opportunities than distilled wines. Theoretically, with the rapid rise of China's comprehensive influence worldwide (including global Chinese), yellow wine has ushered in an unprecedented development environment. However, yellow wine, China's oldest type of wine, still seems to linger more than break through its cocoon, and its slow growth has not yet shown prospects for qualitative acceleration.
Wang Yancai, chairman of the China Alcoholic Drinks Industry Association, stated in his speech at the Yellow Wine Industry Summit that the premise for yellow wine innovation is, first, to return to the essence of meeting consumer drinking needs and to innovate products based on consumption upgrading trends; second, to strengthen the core flavor of yellow wine through technological innovation while achieving modern production methods; third, to innovate yellow wine products to adapt to consumers' preferences for pleasant taste and post-drinking comfort.
We deeply agree with Chairman Wang's views above, but also believe that the yellow wine industry is not undervalued; on the contrary, it is theoretically overvalued. Accordingly, the future innovation and development of yellow wine should not be about breaking so-called external restrictions, but about self-breakthrough in concepts, breaking the shackles of its own inertia and historical habits.
Yellow wine belongs to the "late knower." For years, it has adopted traditional marketing methods without experiencing the overdraw of excessive marketing. The gradual adoption of modern marketing methods will awaken the sleeping value of yellow wine. Recently, a frequently discussed term in the liquor industry is "the return of value of old famous liquors." In fact, what should truly "return to value" is Chinese yellow wine. In the entire alcoholic beverage market, yellow wine is a potential stock. It not only has enormous market space but also enormous appreciation space.
This article is compiled and published by Reference sources: Phoenix Net Wine Industry, China Wine Culture Network, etc. -END-
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