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Text | Best Solution Finance

It is said that "a new official starts with three things".

In 2018, Wang Hao, the new chairman of Jiugui Liquor, took office. At that time, Jiugui Liquor's performance achieved rapid growth after COFCO entered the market. Wang Hao also shouted out Jiugui Liquor's goal of 10 billion yuan at this time.

Jiugui Liquor's performance did not disappoint. During the five years, its revenue increased from 1.1 billion yuan to 4 billion yuan, and its net profit growth rate remained above double digits for many years. If this trend continues, the 10 billion yuan target is only a matter of time.

▲Jiugui Liquor net profit chart/Optimal Solution Finance

Reality is always contrary to one's wishes. In 2023, Jiugui Liquor's operating income and net profit were 548 million yuan, a year-on-year decrease of 47.77%.

According to the performance forecast for the first half of 2024 released by Jiugui Liquor on the evening of July 9 this year, Jiugui Liquor's performance continued to decline in the first half of this year, with a net profit of 110 million to 130 million yuan, a year-on-year decline of 69.19% to 73.93%.

▲ Jiugui Liquor's net profit situation chart/company financial report

The 10 billion target ultimately turned into a mirage, and Wang Hao could only step down in disgrace.

What happened to Jiugui Liquor, which once created the myth of rapid performance growth for several years and was regarded as a dark horse, has now fallen to the point where both its revenue and net profit growth rates have fallen?

1. The reason why Jiugui Liquor is a "dark horse"

As the saying goes, "Even good wine needs a bush." ​​Even if it is a fine wine of excellent quality, it will be difficult to reach and win the favor of consumers if there is no effective market channel.

▲ Jiugui Liquor Product Picture/ Jiugui Liquor

With this in mind, COFCO Group, relying on its abundant dealer resources, guided some of the dealers that originally belonged to COFCO to become partners of Jiugui Liquor.

This move has greatly broadened the sales channels of Jiugui Liquor, and invisibly enhanced its brand influence and market competitiveness, allowing this bottle of "Yulu" to transcend the limitations of the "alley" and be directly presented to more consumers.

In order to achieve the "10 billion" goal, Jiugui Liquor has gradually shifted its focus to the national market, and the number of the company's suppliers has increased sharply.

It is worth mentioning that in 2023, except for the central China region where Hunan is located, Jiugui Liquor has a total of 1,085 distributors in other regions, accounting for 61.16% of the total distributors, further demonstrating Jiugui Liquor's determination to go national.

▲ Chart of the number of suppliers and distributors in recent years/Optimal Solution Finance

The high-end liquor market has always been a battleground for major liquor companies. Jiugui Liquor Company, which produces a unique aroma of rich liquor that combines the three aromas of "strong", "light" and "sauce", is determined to get a share of the high-end market.

▲ High-end wine market scale chart/Huaxin Securities

Therefore, under the strategy of focusing on the high-end and mid-high-end markets, in 2018 Jiugui Liquor joined forces with more than 30 high-end liquor distributors to establish Hunan Neican Liquor Sales Company, which is operated by Jiugui Liquor.

In this model, distributors invest in the company. Jiuguijiu sells the Neican series to the Neican Sales Company, which then wholesales the wine to first-tier distributors... The distributors who invest in the company not only enjoy the channel price difference, but can also enjoy dividends to realize "shareholders selling wine", which deeply binds interests and encourages distributors to buy large quantities of wine.

It coincided with the continued expansion of the high-end and mid-high-end liquor market at this time, and the revenue of the Neican series therefore surged from 244 million in 2018 to 1.157 billion in 2022.

▲ Sales of Neican Liquor/Optimal Solution Finance

Therefore, under the sales strategy of deeply binding with suppliers and distributors and the strategy of focusing on the high-end and mid-high-end markets, Jiugui Liquor Company has also ushered in its "golden period" of rapid performance growth.

2 Jiugui Liquor trapped between "rich fragrance" and "high-end"

As the times change, any company's corporate strategy must keep pace and adjust dynamically to adapt to market changes.

The "2024 China Liquor Market Mid-term Research Report" points out that since 2022, the market has favored national famous liquors and the market has become concentrated.

Survey data shows that the top six brands in terms of sales in the liquor market from January to June 2024 are Moutai, Wuliangye, Yanghe, Fenjiu, Luzhou Laojiao, and Jiannanchun (in no particular order).

This is unacceptable for Jiugui Liquor, a local liquor company that has been committed to national expansion but has never been able to make a name for itself.

On the other hand, the "2024 China Liquor Market Mid-term Research Report" shows that the price range of 100-300 yuan and 100 yuan and below performed best in market sales in the first half of the year.

This is also true based on numerous surveys, and many businesses also generally reflect that lower prices can increase sales.

Against the backdrop of a concentrated liquor market and consumption downgrade, the Neican series and Jiugui series still account for a relatively large proportion of Jiugui Liquor Company's business structure, while the Xiangquan series, which is aimed at the mass market, accounts for only a single-digit proportion.

▲ Jiugui Liquor’s revenue by product/company financial report

Moreover, the rich-flavored liquor that Jiugui Liquor mainly markets has a natural flaw - it has a small audience.

Since the introduction of the liquor classification standards in 1979, strong-aroma liquor with rich aroma, mellow sweetness, and harmonious and long-lasting flavor has always been the mainstream of Chinese liquor consumption.

The audience for sauce-flavored liquor, which has a strong sauce-flavor but a mellower and fuller taste, follows closely behind.

The two major types of liquor will account for 50% and 30.4% of the liquor market respectively in 2023, with a combined share of more than 80%.

This has also led to the squeeze on the survival space of Jiugui Liquor, which mainly focuses on small-flavor and rich-flavor, making Jiugui Liquor's products remain neither famous nor declining in the process of nationalization over the years.

The same is true in Hunan Province, the base of Jiugui Liquor.

In 2022, the liquor market in Hunan Province will account for a total of 28 billion yuan, of which the sauce-flavor market accounts for 8 billion yuan and the strong-flavor market is larger than 15 billion yuan.

In addition, according to the Hunan Provincial Wine Industry Association, influenced by history and culture, Hunan consumers are particularly fond of domestically renowned liquors such as Maotai sauce-flavor liquor, Xijiu, Zhenjiu, Guotai and other Guizhou brands, and famous liquors such as Yanghe and Gujinggong also have considerable sales in Hunan and the growth trend continues.

In the end, Jiugui Liquor, as a local liquor company, only has a market share of about 7% in Hunan, and the remaining more than 60% of the market is occupied by national liquor companies.

It can be seen that whether within or outside the province, the gradual concentration of the market, low popularity and niche flavor have been restricting the development of Jiugui Liquor, ultimately leading to an overall decline in performance and turnover.

3. The "dependency" of suppliers and distributors is gradually emerging

Why did the same type of products maintain high growth in performance in the past but now suffer a comprehensive decline? The reason is that the previous sales strategy was deeply tied to suppliers and distributors.

In the past, Jiugui Liquor attracted a large number of suppliers and distributors through the "shareholders selling wine" model, and achieved a surge in the number of distributors from 2019 to 2022.

However, doubling the revenue by overdrawing suppliers and getting them to take on goods is ultimately a false prosperity.

Because the value of goods can only be realized when they are sold, rather than just being sold.

Nowadays, goods are difficult to sell, resulting in a backlog of goods in the hands of suppliers and marketers. The unsalable products have led to a serious backlog of channel inventory. In addition, Jiugui Liquor Company likes to raise prices. In 2021 alone, it made many adjustments to the Neican series of products, rising all the way to 1,050 yuan.

▲ Finished wine inventory chart/Jiugui Neican

Eventually, prices inverted, which further affected the enthusiasm of offline suppliers and marketers to purchase goods and undermined consumer confidence. Naturally, it is not surprising that Jiugui Liquor has seen an overall decline in performance in the past two years.

4 Pains and achievements during the reform period

In fact, Jiuguijiu Company is not unaware that the performance growth brought by binding suppliers and distributors is difficult to maintain in the long run, so it is also actively seeking reforms in its sales strategies.

Since 2022, Jiugui Liquor Company has embarked on a journey of transformation in its sales model, investing part of the promotional expenses of the B-end channels into BC-end linkage expenses.

By using activities such as bottle opening and scanning, banquets, etc., the C-end is linked with small B (terminal stores) and big B (suppliers and distributors) to strengthen the cultivation of consumers and promote the growth of dynamic sales.

However, according to the data, the sales expense ratio and management expense ratio in 2023 increased by 6.9 and 1.5 percentage points year-on-year respectively, reaching 32.2% and 5.9%. In terms of profit, the net profit was 548 million yuan, a year-on-year decrease of 47.77%. While the profit was decreasing, the investment such as sales expenses was increasing, and the company's operating pressure was further increased.

However, according to the company's announcement, the decline in Jiugui Liquor's operating income in the second quarter of 2024 was significantly narrowed compared with the first quarter. It can be seen that there are still certain results.

As a liquor brand company, the product itself is naturally the top priority. How to expand its audience while ensuring that the main fragrant liquor retains its own characteristics is naturally an issue that Jiugui Liquor needs to focus on.

Therefore, in recent years, Jiugui Liquor has upgraded its technology and launched a number of products with increasingly mellow taste and richer product types. Overall, it still has a good reputation but poor sales. However, as it vigorously cultivates consumers to seek change, the future is still worth looking forward to.

5 Conclusion

Although Jiugui Liquor is currently full of problems, these problems just point out the direction for improvement. At present, various reform measures targeting the pain points and difficulties of Jiugui Liquor are also being continuously promoted.

However, if Jiugui Liquor wants to reverse its decline and regain its foothold in the liquor industry, it cannot rely on a few reforms to revive. It also needs strong management to implement stable reform measures, step by step, and slowly repair the sequelae and market trust caused by radical channel expansion over time.

Take a rest, then cheer up again and start again.

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