Recently, the China Alcoholic Drinks Association announced the postponement of the 2023 Hangzhou International Wine Expo, attracting attention from various sectors.
The originally scheduled 2023 Hangzhou International Wine Expo, set to take place from December 11th to 13th, will be postponed and merged with the 2024 Beijing International Wine Expo. The new dates are May 25th to 27th, 2024.
Why the postponement?
According to convention, wine expos invite companies from around the world to showcase fresh and cutting-edge products while also releasing full-line products and solutions throughout the supply chain.
Most importantly, they provide a platform for communication and negotiation between buyers and sellers, ultimately facilitating transactions.
The China Alcoholic Drinks Association stated that many exhibitors have contacted them, expressing an inability to make normal purchases due to excessive inventory.
Without purchases, the significance of the expo diminishes, making it unnecessary to hold.
The decision to merge with the Beijing International Wine Expo is a reluctant one.
In recent years, Chinese liquor companies, especially baijiu enterprises, have faced challenges.
The most direct impact felt by consumers is the price inversion.
Baijiu undergoes several distribution channels from production to reaching consumers. Each additional channel introduces extra costs, resulting in the retail price being higher than the factory price, and the market transaction price being higher than the retail price.
On June 19th, the China Alcoholic Drinks Association released the “2023 Mid-term Research Report on the Chinese Baijiu Market,” stating that after this year’s Spring Festival, many baijiu market transaction prices were lower than the retail prices, indicating a serious price inversion.
A list of baijiu with inverted prices in 2023 is shown in the image, with products like Langjiu Blue and White Lang and Jiuguijiu Neicanjiu having market transaction prices even lower than the factory prices.
Apart from Maotai “doing well on its own,” most baijiu has faced the problem of price inversion.
Price inversion essentially means selling at reduced prices.
Businesses reluctantly reduce prices because their inventories have piled up excessively.
Data from Dongfang Fortune Choice shows that in the first quarter of this year, among 19 listed baijiu companies, 17 experienced an increase in inventory compared to the same period last year.
According to Tonghuashun data, as of the end of the third quarter this year, the total inventory of 20 listed liquor companies increased by 12% compared to the same period last year.
In business, turnover is crucial.
Severe inventory backlog consumes a significant amount of capital.
Selling at a reduced price may not bring profits, but it can alleviate cash flow pressure and keep businesses afloat.
The inventory backlog also needs analysis from both the supply and demand sides.
On the supply side, baijiu companies, in pursuit of performance and quarterly financial statements, excessively expand production capacity and pressurize channels, leading to severe inventory backlogs for both themselves and distributors.
From the demand side, baijiu indeed seems to be not selling well.
Let’s look at the data on China’s baijiu production over the years.
The statistics from 2017 to 2022 show that China’s baijiu production has nearly halved.
In the first three quarters of this year, large-scale baijiu enterprises produced 3.066 million kiloliters, a 9% year-on-year decline.
The annual production is expected to decrease compared to last year.
Please note that while production is decreasing, inventory remains high, indirectly indicating a decline in sales.
“Inactivity in sales” and “difficulties in doing business” are consistent with market data and the sentiments of baijiu distributors.
So, why is baijiu not selling well?
Looking at consumption scenes, banquets are crucial for baijiu consumption.
Strict restrictions on “Three Public Expenses” have limited official receptions, and even in many private banquets, fewer people are choosing to drink baijiu.
Regarding the consumer demographic, baijiu consumption is mainly driven by those born in the 1950s, 1960s, and 1970s, with younger generations not showing a liking for baijiu.
In terms of consumption habits, there is a changing trend in drinking culture, with more people accepting the idea of drinking responsibly and healthily.
From the perspective of consumption necessity, baijiu is not a necessity.
In a sluggish consumption environment, those who don’t like baijiu will choose not to drink it, and those who like it will choose to drink less.
With multiple factors at play, the inevitable outcome is a decline in baijiu sales.
China’s baijiu industry has transitioned from an era of incremental development to an era of intense competition and even reduced competition.
According to relevant statistics, the number of China’s large-scale baijiu enterprises has decreased from 1,593 in 2017 to 963 in 2022.
It’s interesting that in this year’s third-quarter reports, many listed baijiu companies, including Guizhou Maotai, Wuliangye, Luzhou Laojiao, and Shanxi Fenjiu, achieved double-digit growth in performance for the first three quarters.
This indicates that the “Matthew Effect” in China’s baijiu industry is becoming more pronounced, with the strong getting stronger, and the days of small and medium-sized liquor enterprises becoming even more challenging.
Some time ago, Maotai and Luckin jointly launched “Sauce Fragrance Latte,” claiming it to be the “first cup of Maotai for young people.”
While the “Sauce Fragrance Latte” gained popularity, the truth is that young people aren’t fond of drinking Maotai; they just want to join the trend.
Moreover, even if young people genuinely liked Maotai, Maotai is just one brand.
It’s not easy for baijiu to capture the taste buds of the younger generation.
The Chinese baijiu industry needs to consider a moderate “detoxification.”