With Chinese lunar New Year in the corner, Jiugui Liquor has fallen into the overcast cloud of cyclamate due to the report of its former dealer. Until the 23rd of December, the market value of Jiugui Liquor has evaporated about 1.2 billion Yuan. However, Jiugui Liquor only has limited market share in white-spirits market. Other white-spirits enterprises are still benefiting from the boom season, and most of them are performing well.
Tradition and Consumption Upgrade Promote Market Growth
Boom season of white-spirits market comes every year around Chinese lunar New Year, because drinking white-spirits is a tradition in China. When friends and families are reunited, people drink for pleasure; when in events like wedding or birthday, people also drink for celebration. And most white-spirits consumption scenes such as wedding and reunions happen around Chinese lunar New Year.
Although the liquor market in China is colorful, wine and craft beer are popular, white-spirits still has dominance in certain consumption scenarios for its unique cultural background. for the tradition of China. Whit-spirits, as fast-moving consumer goods (FMCG), has relatively small market growth fluctuations, but the overall development trend is good. In addition, under the influence of China’s cultural confidence, self-recreational white-spirits consumption has been increasing. the consumption of Chinese spirit is growing. Meanwhile, in the social activities of young groups, white-spirits consumption has gradually increased. In 2018, the sales of white-spirits was about 585 billion yuan, and the growth rate was 3.9%.
Sales of Chinese Spirits has Little Fluctuation
Mid-to-high end Chinese spirits are expensive, so the policy of restricting official consumption has caused a certain decline in white-spirits sales. However, with the consumption upgrade of Chinese residents, the sales of mid-to-high end white-spirits has not declined significantly. Otherwise, the drinking tradition of Chinese spirits has made Chinese consumers less sensitive to the price. Even the ex-factory prices of high-end Chinses spirits keep growing, the market is still performing well.
Flat Era belongs to National Brand
With the base of Chinese spirits market growing year by year, its further development will slow down. In the case of slowing market growth, industry differentiation will continue to increase. The growth rate of national brands will far exceed provincial brands, and the market of mid-to-low end Chinese spirits will shrink further.
There are many Chinese spirits enterprises, and those which have formed brands could be divided into three tiers. The first-tier brands are only Moutai and Wuliangye, and these two enterprises are very competitive not only in China but also in worldwide. Second-tier brands are leading enterprises in provinces, like Luzhou Lao Jiao, Jiugui Liquor, Gujing, Yanghe, Shede Spirits, Shuijingfang, Fenjiu and etc. As for the enterprises in the third-tier, they have high market proportion in their own provinces, such as Hengshui Laobaigan, Kouzi, Jinshiyuan, Xiangjiao and etc.
It is worth noting that when the price of first-tier white-spirits brands rose with profits, the sales of second-tier brands fell due to price increases. The consumers of second-tier and third-tier enterprises are more sensitive about price than customers of first-tier enterprises, and the difference between second-tier and third-tier enterprises is small, so the market share of third-tier enterprises have surpassed second-tier enterprises for higher cost performance.
Market Share of Third-tier Surpassed Second-tier in 2017
Affected by popularization of Internet, the market methods of white-spirits enterprises have also changed. In the past, enterprises established sales channels around the world through distributors, and most consumers bought white-spirits in supermarket or stores only for tobacco and liquor. Now, most white-spirits enterprises have entered the mainstream e-commerce platforms to directly connect with consumers. The new e-commerce model is more suitable for current consumer shopping habits and shortens the distance between enterprises and consumers. In the future, the sales of white-spirits will be further flattened. Under this condition, price comparison would be easier, and the information that could be acquired would be more comprehensive. Therefore, national brands will earn a larger market share in the flatr era.
Absolute Leading Enterprise of White-spirits Market
After congratulating each other for more than 100 billion yuan’s sales, Moutai and Wuliangye organized their annual meeting with distributors one after another. Moutai announced that its plan in 2020 is to sell 3.45 tons of liquor, and this target is 11.3% higher than that of 2019. Meanwhile, the chairman of Moutai stated that “the price of Moutai will remain the same in the short term”. Unlike Moutai, the plan of Wuliangye is to increase both production and price. Wuliangye announced that the production will increase for 5% to 8% in 2020, and will continue to increase prices as a core strategy.
The differences between Moutai and Wuliangye's 2020 plans stem from their different market positions. Even though Moutai does not have the title of “Liquor of China”, most Chinese have regarded it as so. The ex-factory price of Wuliangye’s core product is 889 yuan, and this is only a little lower than that of Moutai. However, the actual retail price of Wuliangye is the same as its suggested retail price, while Moutai’s actual retail price is far more expensive than of its suggested retail price. As for now, Moutai’s suggested retail price is 1499 yuan, and its actual retail price has exceeded 2300 yuan.
Product Premium of Moutai is Obvious
It is true that both Moutai and Wuliangye are in the first-tier, but the white-spirits market is now having a tendency of “one super and many strong”. In 2018, Moutai earned about 67.1 billion yuan on liquor business with the 91.3% gross margin, and this profit is 28.3% higher than that of 2017. In the same period, Wuliangye earned 29.3 billion yuan with a gross margin of 77.6%. Moutai focuses more on high-end white-spirits, and has a great advantage on gross margin.
Moutai is Leading Chinese Spirits Industry
Moutai’s actual retail price is now more than 1.5 times that of suggested retail price, but this is not a good thing for the manufacturer. The out-of-control retail price is damaging the image of Moutai, yet the enterprise can earn nothing from the product premium. To obtain higher profit, Moutai is now actively saving costs through the improvement of technology and management level. In 2020, the distributing channel and sales model of Moutai may also be adjusted.
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