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Ye Xinran, a reporter from Economic Observer On July 30, Shanghai Bairun Investment Holding Group Co., Ltd. (002568.SZ, hereinafter referred to as “Bairun shares”) released its 2024 semi-annual report. In the first half of this year, Bairun shares achieved revenue of 1.628 billion yuan, a year-on-year decrease of 1.38%; realized net profit attributable to shareholders of 402 million yuan, a year-on-year decrease of 8.36%; realized net profit attributable to shareholders after deducting non-recurring items of 392 million yuan, a year-on-year decrease of 9.20%.

The decline in revenue was mainly due to the decline in the pre-mixed cocktail business, which accounts for nearly 90% of the revenue. The revenue of this business fell by 1.42%. The sales volume of pre-mixed cocktails fell by 8.69%.

The ready-to-drink cocktail business is under pressure, and the market has placed its expectations on Bairun's spirits project. Previously, Bairun responded to investors that the company expects to release finished whiskey in the fourth quarter of 2024. Many brokerage research reports also pointed out that Bairun's finished whiskey will be launched in the second half of the year.

Bairun Holdings has placed its second growth curve on the whiskey project, but the project has been in the works for nearly eight years. The barrel aging of the first batch of whiskey products can be traced back to three years ago. Whiskey and fast-moving consumer goods cocktails are two different businesses. The turnover of whiskey is relatively slow, and the asset investment is heavier. Everything is still unknown in the new cross-border business.

Cocktails under pressure

Bairun shares mainly have two businesses: cocktails and edible flavors. The cocktail business is mainly based on its Rio brand. In the first half of 2024, the revenue of pre-mixed cocktails (including sparkling water, etc.) was 1.431 billion yuan, a year-on-year decrease of 1.42%, accounting for 87.90% of the revenue; the edible flavor business achieved revenue of 176 million yuan, a year-on-year increase of 7.51%, accounting for 10.79% of the revenue.

In terms of channels, in the first half of the year, Bairun achieved revenue of 1.43 billion yuan in offline channels, a year-on-year increase of 7.03%. However, Bairun saw a sharp decline in digital retail channels and ready-to-drink channels, with the former achieving revenue of 156 million yuan, a year-on-year decrease of 35.68%; the latter achieved revenue of 21.2041 million yuan, a year-on-year decrease of 42.69%.

In terms of dealers, compared with 2,164 at the beginning of 2024, the company's dealers decreased to 2,116 at the end of June 2024. Among them, the number of dealers in East China decreased the most, from 570 at the beginning of 2024 to 503.

Regarding the above performance changes, the reporter contacted Bairun Holdings, but no reply was received as of press time.

At present, Rio Cocktail includes three product series: Tipsy, Refreshing and Strong. The alcohol concentration of Tipsy is 3%, Refreshing and Strong are 5% and 8% respectively. In 2022, Bairun Holdings named these three series as the "358-degree product matrix", corresponding to different consumption scenarios and consumption purposes, opening up a more systematic approach.

It was the outbreak of Qiangshuang that helped Bairun achieve a performance leap in 2023. In 2022, Bairun saw a rare decline in both revenue and net profit. At the time, Bairun admitted that it was greatly affected by the epidemic. At the 2022 Annual Shareholders' Meeting, Liu Xiaodong, Chairman of Bairun, said that in the second half of 2022, Qiangshuang had an "explosive volume". He also revealed that 90% of Qiangshuang's customers tend to be male and high-frequency consumers.

Bairun Holdings also mentioned Qiangshuang's explosive growth many times in its 2023 financial report. In 2023, Bairun Holdings' revenue and net profit attributable to shareholders increased by 25.85% and 55.28% year-on-year respectively.

Low-alcohol wine needs to maintain viscosity

At present, Qiangshuang has become the pillar product line of Bairun's cocktail business. In May this year, Geng Tao, secretary of the board of directors of Bairun, revealed at the performance briefing that the sales of Qiangshuang series products accounted for the highest proportion, followed by Weixun and Qingshuang series.

However, this year, cocktails failed to continue their strong growth. The company's first quarter report showed that Bairun's revenue increased by 5.51%, but its net profit attributable to the parent company fell by 9.80%.

Bairun shares have always insisted on heavy marketing investment, but its sales expense ratio has gradually increased and the efficiency of sales activities has decreased. In the first half of 2024, Bairun shares' sales expenses were 397 million yuan, a year-on-year increase of 19.87%, and the sales expense ratio was 24.39%. In the first half of 2023, the sales expenses were 331 million yuan, a year-on-year increase of 45.91%, and the sales expense ratio was 20.07%.

Yu Jian, general manager of Kantar Worldpanel Greater China, said that low-alcohol beverages need to find core consumer groups and precise consumption scenarios, otherwise it will be difficult to achieve sustainable growth.

In 2020 and 2021, the low-alcohol wine track where Rio was located was once very popular. According to incomplete statistics, in 2021, there were 56 financings for low-alcohol wine, with a total investment of about 2.5 billion yuan. Among them, many low-alcohol wine brands have only been established for one to two years. However, in 2022, the financing of low-alcohol wine began to cool down, and the number of financing events dropped to single digits, and in 2023 it dropped to freezing point.

The low-alcohol beverage industry seems to lack stamina as a whole and lacks user stickiness. Yu Jian said that after the capital tide recedes, if low-alcohol beverages cannot continue to invest in brand building, they may slowly fade in the minds of consumers. At present, the competition in the low-alcohol beverage market is quite homogeneous, the entry threshold of the market is not high, and many brands are not very differentiated in taste and quality. Head brands like Rio must increase the possibility of the brand being purchased by occupying the minds of more consumers. Continue to invest in exposure and experience so that consumers have a correct understanding of the brand, so that people can always think of the brand and remember the meaningful differentiation.

Compared with beer, cocktails are more niche and face greater pressure to penetrate the category. An industry insider who has been engaged in alcohol sales for 9 years told reporters that the audience for cocktails is still narrower than that for beer. In the past few years, Rio was relatively popular among young people, but now young people prefer to try some new beer flavors, such as white beer and fresh beer.

The "Alcoholic Beverage Consumption Habits - China - 2024" report released by Mintel in June this year showed that the consumption frequency of pre-mixed cocktails ranked fourth, the top three being ordinary beer, wine and fruit wine.

Feng Huaqing, Vice President of Ries Category Innovation Strategy Consulting China, said that although pre-mixed cocktails are vigorously developing new scenes, objectively speaking, liquor occupies the Chinese table dining scene, foreign liquor such as whiskey occupies the bar scene, and beer occupies the barbecue and social scene with friends. The category selection of mainstream drinking scenes is relatively solidified, while new scenes such as drinking alone and family gatherings are significantly lower in frequency and audience than the aforementioned mainstream scenes, which is also the reason for the slow development of the pre-mixed cocktail market. In addition, "pre-mixed" itself has a certain negative perception in the minds of consumers. They often regard this type of wine as a little sweet water, and this perception has also become an obstacle to the long-term development of the category.

Feng Huaqing also said that how pre-mixed cocktails can successfully capture the mainstream scene in the future will be the key to determining whether this category will have greater vitality.

Liquor Narratives

In recent years, compared with cocktails, the market's attention to Bairun Holdings has been more focused on the spirits project that has not yet been officially unveiled. This is a new narrative that investors hope to see.

Bairun Holdings' investment in spirits projects represented by whiskey dates back to 2017. In 2017, Shanghai Bacchus Wine Co., Ltd., a wholly-owned subsidiary of Bairun Holdings, started the construction of a spirits project base in Qionglai, Sichuan, with an investment of about 500 million yuan. The project was named Laizhou Distillery and was officially completed in 2021 to produce whiskey, vodka and other spirits.

Among them, whiskey is the development focus. Bairun shares have repeatedly pointed out that the spirits business is guided by the strategy of "focusing on the development of whiskey, occupying a position in high-quality spirits, and becoming the leader of China's local whiskey industry."

In 2021, after the completion of the Laizhou Distillery, the first batch of whiskey was officially barreled. Because whiskey needs to be aged in barrels for at least 3 years, Bairun's finished whiskey has not yet been listed. Previously, Bairun revealed that the finished whiskey is expected to be released in the fourth quarter of 2024. Geng Tao said at the performance briefing that among the finished whiskeys, the company will focus on brand incubation and product development of malt whiskey and blended whiskey.

Over the past seven years, Bairun’s investment in spirits, including the construction of the Laizhou Distillery, the spirits (whiskey) aging and maturation project, and the malt whiskey aging and maturation project, has amounted to nearly 2 billion yuan.

Whiskey requires several years of barrel aging, which has led to a continuous increase in Bairun's inventory turnover days, which has increased from 82.20 days in the 2020 interim report to 313.6 days in the 2024 interim report. The finished whiskey product will not be unveiled until the fourth quarter of this year.