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Zebra Consumption Chen Xiaojing

Despite a decline in both revenue and net profit, Bairun shares actually hit the daily limit.

On the evening of July 30, Bairun Holdings (002568.SZ) disclosed its semi-annual report, with operating income down 1.38% year-on-year and net profit attributable to shareholders down 8.36% year-on-year.

However, it was this mid-term report card with a double decline that actually allowed the company to hit the daily limit after months.

Bairun's Rio is the absolute leader in the domestic ready-to-drink cocktail market, but the overall market size is small, competition is fierce, and the ceiling is approaching. In the first half of this year, the company increased its investment in sales expenses, but it was unable to boost Rio's growth.

At present, the market's attention on Bairun shares has shifted to the whiskey that the company will launch in Q4.

Cocktails are not selling well

In the first half of this year, Bairun Holdings (002568.SZ) achieved operating income of 1.628 billion yuan, a year-on-year decrease of 1.38%, and realized net profit attributable to shareholders of 402 million yuan, a year-on-year decrease of 8.36%.

If you look at this mid-term report card statically, you may think that there is not much problem. But if you look at it over a longer period of time, you can find that the company has shown a clear downward trend in performance since Q4 last year.

The financial report shows that in the fourth quarter of last year, Bairun’s net profit was 144 million yuan, down 33.33% year-on-year; in Q1 of this year, the company’s revenue increased by 5.5% year-on-year, but its net profit decreased by 9.8%; in Q2, there was a double decline: revenue was 826 million yuan, down 7.25% year-on-year; net profit attributable to shareholders was 233 million yuan, down 7.28% year-on-year.

Cocktail is the core of Bairun Holdings. It is a mixed drink with strong fast-moving consumer goods attributes. To maintain market heat, the company needs to maintain high-intensity market investment.

In the first half of this year, this market strategy continued, with sales expenses reaching 397 million yuan, a year-on-year increase of 19.87%, of which advertising and publicity expenses amounted to 249 million yuan, a year-on-year increase of 34.71%.

However, the investment of real money has limited effect on product sales. In the first half of the year, the company's sales volume of pre-mixed cocktails (including sparkling water, etc.) was 17.21 million boxes, a year-on-year decrease of 8.69%.

The ceiling is approaching

Bairun Holdings started out as a flavor business. Later, its founder Liu Xiaodong took over Rio’s parent company, Bacchus Wines, and cocktails became the company’s mainstay.

Since 2011, the Chinese cocktail market has quietly risen. After several years of market cultivation, Rio helped Bairun Holdings achieve 2.351 billion yuan in revenue and 500 million yuan in net profit attributable to shareholders in 2015, and it enjoyed great success.

The popularity of Rio has attracted many players to enter the pre-mixed cocktail market, resulting in overcapacity, frequent counterfeiting problems, and a cold reception for the cocktail industry. In 2016, Bairun’s operating income plummeted by 60% and its net profit plummeted by 70%.

After the thrilling roller coaster ride, Bairun Holdings actively adjusted itself. In 2018, it mainly promoted the Tipsy series of Ruiao, positioning it as "a small wine for one person". As the scale of the Tipsy market expands, the company will once again enter a high-growth track in 2020 and 2021.

However, Bairun shares can never rest easy.

On the one hand, cocktails are imported products and do not have a widespread user base in China, so the overall market size is limited. Although Rio has been ranked first in the market for many years, the ceiling is approaching.

On the other hand, cocktails are mixed drinks with a limited product life cycle. Its main audience, young people, pursue personalization and diversification, and their needs change quickly. This requires companies to continuously launch new products and quickly respond to user needs.

In the ready-to-drink cocktail industry, Rio has no strong rivals, but since 2019, new players, traditional wine companies, and beverage brands have launched low-alcohol drinks one after another, competing with Rio for consumer scenarios. In particular, brands such as Berry Sweetheart, Lanzhou, Meijian, and Fruit Cube have strongly captured young people, especially young women, with their high appearance and personalized scenarios.

Betting on whisky

Bairun Holdings has also realized the limitations of the ready-to-drink cocktail category and is trying to seek growth in related fields.

As early as 2017, the company began to develop whiskey, hoping to become a niche in another market.

According to Euromonitor data, China's whisky market has grown rapidly since 2017, with an average annual double-digit growth rate. In 2023, the market size of whisky in my country will be about 5.5 billion yuan.

After years of planning, Bairun Holdings' "Spirits (Whiskey) Aging and Maturation Project" and "Malt Whiskey Aging and Maturation Project" have completed 72.91% and 77.57% of their investment respectively. The company has poured more than 300,000 barrels of aged whiskey and is expected to release finished wine in the fourth quarter of this year.

At present, the Chinese whiskey market is dominated by imported brands, with CR5 as high as 67.01%. Not only Bairun, but also traditional liquor giants such as Yanghe, Gujing Group, Yanjing Group, Tsingtao Beer, and Langjiu are optimistic about the Chinese whiskey market and have entered the market one after another.

From a bartender to a winemaker, Bairun's biggest advantage is the brand building ability accumulated through Rio. But whiskey is different from cocktails, it is a wine that pays more attention to the background. It took Suntory a full hundred years to tell the story of whiskey in Japan.

This not only tests the patience of the brand, but also requires huge cash flow support. In May this year, Bairun Holdings suddenly terminated a 2 billion yuan fixed increase plan, which the company had been planning for 8 months.