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The 11% growth rate of Kweichow Moutai in the first quarter disappointed investors a little, and it remains unknown whether it can successfully complete the annual budget task of 18%.

Text/Daily Financial Report Du Kang

Not only did Kouzijiao fail to return to the second place among Anhui liquors, but the gap between it and the current runner-up of Anhui liquor, Yingjia Gongjiu, further widened.

The 2022 annual report shows that Yingjia Gongjiu achieved operating income of 5.505 billion yuan, while Kouzijiao achieved operating income of 5.135 billion yuan in the same period, and Yingjia Gongjiu surpassed it by 370 million yuan. In 2023, Kouzijiao achieved operating income of 5.992 billion yuan, and Yingjia Gongjiu achieved operating income of 6.72 billion yuan. The revenue gap widened to 758 million yuan, doubling the gap. In the first quarter of 2024, Kouzijiao's revenue was 1.768 billion yuan, up 11.05% year-on-year, and Yingjia Gongjiu's revenue was 2.325 billion yuan, up 21.33% year-on-year. There is still a big gap between the two.

In fact, from 2017 to 2021, Kouzijiao has developed quite well in Anhui Province, and has always been ranked second among Anhui liquors. In 2017, it was only 3.36 billion yuan away from Gujing Gongjiu, which ranked first in the province. Today, Gujing Gongjiu not only firmly occupies the position of the leader of Anhui liquors, but has also entered the camp of 20 billion liquor companies, and is obviously no longer in the same league as Kouzijiao.

In 2022, Kouzijiao has made it clear that it will "accelerate the realization of 10 billion Kouzijiao and enter the first echelon of national liquor". However, judging from the development over the past year, the results have not been as expected, and this is the result of Kouzijiao spending tens of millions on consulting. So, in the development of Kouzijiao in recent years, what has led to its current development situation?

The product is limited to the province and the brand influence is insufficient

There is a saying in the liquor industry that "you can't go to Sichuan from the west, and you can't go to Anhui from the east". Sichuan to the west has unique geographical conditions for brewing, while Anhui to the east is a place where many famous liquors compete fiercely.

In the local market of Anhui, in addition to some local large and small liquor companies, leading liquor companies such as Maotai, Wuliangye, Luzhou Laojiao, Yanghe, and Fenjiu have also entered the market one after another, and the competition is extremely fierce. This has forced the liquor companies in Anhui Province to go beyond the province and move towards a nationwide layout.

However, at a time when the leading Anhui liquor companies are competing to expand nationwide, judging from the financial data, Kouzijiao's dependence on the Anhui market is still increasing.

The financial report shows that from 2020 to 2023, Kouzijiao's revenue in Anhui Province accounted for 80.1%, 82.1%, 82.43% and 83.81% respectively, showing an increasing trend year by year. In terms of the distribution of dealers, Anhui Province also accounts for half. As of 2023, Kouzijiao has 496 dealers in Anhui Province and 455 dealers outside the province.

Outside the province, "Daily Financial Report" learned that from 2020 to 2023, the proportion of Kweichow Moutai's revenue outside Anhui Province was 19.9%, 17.9%, 17.57% and 16.19% respectively. In the past four years, the proportion of revenue outside Anhui Province has declined by a total of 3.71 percentage points.

In terms of profit structure, from 2020 to 2023, Kweichow Moutai's profit share in Anhui Province was 81.07%, 82.81%, 83.08% and 84.51% respectively. In the past four years, the profit share in Anhui Province has increased by 3.44 percentage points in total.

During the same period, the proportion of profits outside Anhui Province of Kouzijiao was 18.93%, 17.19%, 16.92% and 15.49% respectively. In the past four years, the proportion of profits outside Anhui Province has dropped by 3.44 percentage points in total. It can be seen that Kouzijiao's performance in Anhui Province is better than outside the province, but it also exposes its shortcomings in the national market layout.

At the 2023 and 2024 first quarter performance briefing held on July 5, Kouzijiao also admitted that the company is still far from nationalization and gave a catch-up strategy. Kouzijiao said that it will combine the actual market development. While vigorously improving the provincial market, the company has also made a clear layout for the markets outside the province, focusing on the Yangtze River Delta and the Greater Bay Area, and other markets as supplements. Take the lead in improving the layout of dealers in the Yangtze River Delta and the Greater Bay Area, focus on launching point markets with a certain foundation outside the province, and promote large-scale investment in markets outside the province. Strengthen the basic cultivation of key markets outside the province and promote the healthy development of various dealers.

In recent years, leading wine companies have been competing for high-end products, launching big single products, and looking for growth in performance. In terms of high-end products, according to the data given in the annual report, Kweichow Moutai's high-end products have achieved growth.

In 2023, the sales revenue of Kouzijiao's high-end liquor reached 5.678 billion yuan, a year-on-year increase of 16.58%; the sales revenue of mid-range liquor reached 76.3108 million yuan, a year-on-year decrease of 19.76%; the sales revenue of low-end liquor reached 94.7335 million yuan, a year-on-year increase of 0.72%. However, while high-end products achieved growth, the sales of Kouzijiao's mid-range liquor declined. Some analysts believe that Kouzijiao is limited by its brand influence, and the driving effect of high-end products on mid- and low-end products is limited.

Management expenses increased, and contract liabilities fell for four consecutive years

The Daily Financial Report noted that in 2022, Kouzijiao invited McKinsey to jointly formulate a strategic goal: in the next five years, it will strive to be the leader in Anhui liquor in terms of sales, brand influence, channel popularity, etc. However, two years later, Kouzijiao has not become the leading Anhui liquor company, and the "potential gap" with its main competitor Yingjia Gongjiu has further widened, while McKinsey has made a lot of money.

In the 2023 annual report of Kouzijiao, it can be seen that the increase in expenses has become a major factor dragging down performance. In 2023, Kouzijiao's management expenses were 407 million yuan, a significant increase of more than 50% year-on-year. During the same period, the management expenses of Yanjing Gongjiu were 209 million yuan, an increase of 9.3% year-on-year.

Kweichow Moutai said that the increase in management expenses was related to depreciation and amortization, consulting service fees and equity incentive expenses. Specifically, depreciation and amortization expenses during the period were 132 million yuan, an increase of 31.47% year-on-year; consulting service fees were 38.2691 million yuan, an increase of 196.92% year-on-year; equity incentive expenses were 33.8861 million yuan, and there was no such expenditure in the previous period.

That is to say, among the three expenses, the consulting service fee has the largest increase. Judging from the situation in the past three years, Kweichow Moutai is also more and more willing to spend money on consulting services. From 2021 to 2023, the company's spending on consulting services has increased tenfold, from 3.0124 million yuan to 12.8887 million yuan, and then to the current 38.2691 million yuan.

Of course, it cannot be said that this expense of Kouzijiao was completely wasted. It is understood that after the cooperation between the two parties, McKinsey helped Kouzijiao launch the Jian series products Jian 10, Jian 20, and Jian 30, which iterated the original Kouzijiao 10-year, 20-year, and 30-year products, further highlighting the Jianxiang characteristics while also raising the price, filling its price range of more than 1,000 yuan.

At this performance communication meeting, the company's management said that in response to the high consulting fees, the effect of the investment in fees has a certain lag at different stages. If we insist on doing the right things and taking the right path, we will definitely be able to achieve the expected goals.

In addition, as the "reservoir" of listed liquor companies, contract liabilities to a certain extent reflect the market appeal and channel bargaining power of liquor companies, and are also an important manifestation of the willingness of distributors to pay. However, for Kouzijiao, the willingness of channels to take goods has not increased, but has declined.

Financial report data shows that at the end of 2023, the balance of contract liabilities of Kweichow Moutai will be 397 million yuan, a decline for the fourth consecutive year, and only half of the level in the same period of 2020. At the end of the first quarter of 2024, the balance of contract liabilities will be 375 million yuan, a further decline from the end of last year. This is also a potential crisis for Kweichow Moutai.

The big business model is showing signs of fatigue

In addition, "Daily Financial Report" learned that the slowdown in Kweichow Moutai's performance growth in recent years is also related to the gradual decline in the dividends of the "plate within a plate" marketing model on which it has long relied. At the same time, the lack of channel control in the big merchant model has also become a bottleneck restricting its development.

Around 2000, when face-to-face interaction between manufacturers and consumers was still unimaginable, Kweichow Moutai pioneered a highly growth-oriented marketing model - the "plate within a plate" model.

"Plate within a plate" can be divided into "large plate", "medium plate" and "small plate", which correspond to high-end, mid-range and mass hotels and consumer groups respectively. The core idea of ​​this model is to concentrate resources and energy on a few core hotel terminals, dealers and consumers, and use the power of the core consumer group to drive the product to form a consumption boom in this group, and use this influence to develop to a wider market.

This model was successfully listed on the market in 2015 by Kouzijiao, and entered a stage of rapid development from 2015 to 2019. Kouzijiao's core product, Kouzijiao 5-year-old, was born when the "plate in plate" model was promoted. Combined with the plate in plate model, it quickly occupied the market and still accounts for an important proportion of Kouzijiao's operating income.

However, the success or failure of Kouzijiao is due to the "plate within the plate" model. Kouzijiao, which conquered cities and territories with the "plate within the plate" model, also "trapped" itself. The "plate within the plate" model was imitated by a number of wineries in the early days, and gradually lost its innovation advantage. Major wineries have already invested in the competition for the C-end.

What is more serious is that based on the "plate within a plate" model, Kweichow Moutai has long implemented a large merchant model, that is, the company is only responsible for product production and brand promotion, and market operations, ground promotion, terminal delivery and other work are controlled by distributors. Although this model reduces sales expenses, it significantly weakens the company's direct control over the terminal market.

This strategy of lightly binding the interests of distributors has made Kouzijiao slow to respond to market changes, making it difficult to effectively cope with the competitive pressure brought by the sinking of channels of first-tier famous liquors such as Moutai and Wuliangye. In the process of national expansion, Kouzijiao's steps are becoming increasingly difficult.

From the perspective of the industry, after years of development, the liquor industry has a large consumer group and a relatively complete market structure for sauce, strong and light flavors. In contrast, the blended flavor category is still a "niche flavor". According to the "2023 China Liquor Industry Research Report" released by TouBao Research Institute, the market share of blended flavor liquor in 2023 is only 5.5%, while the market shares of strong flavor liquor, sauce flavor liquor and light flavor liquor are 46.2%, 32.0% and 14.0% respectively.

Ouyang Qianli, an expert in the liquor industry, once pointed out: "Mixed-flavor liquor is not a new type of flavor, but no company has ever achieved a scale of 10 billion." In addition, in addition to the mixed-flavor series launched by Kouzijiao, well-known liquor companies such as Jinshiyuan and Yuquan Liquor have also successively released new strategic products of mixed-flavor liquor. This is "adding insult to injury" for Kouzijiao, which has not been developing very well.

Therefore, for Kouzijiao, 2024 is a key year for realizing the "10 billion Kouzi" strategy, but the 11% growth rate in the first quarter disappointed investors a little. Whether it can successfully complete the annual 18% budget task has also become the focus of market attention, and it is also the key to whether it can catch up with the other two heroes of Huizhou merchants.

Daily Financial Report

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