Text: Xiangshan Finance
If 2024 is the "cold winter" of the liquor industry, then in the first half of this year, the liquor industry officially entered a more cruel "deep winter".
According to the latest financial report data, under the catalysis of the "prohibition", the total revenue and net profit of 20 listed liquor companies in the first half of this year both declined slightly, with an average decline of 2.12% and 1.18%, respectively, announcing that the overall pace of the industry has entered a stage of lowering growth from last year's slowdown in growth.
Specifically for enterprises, the situation is even more cruel. In addition to Kweichow Moutai, the top famous liquors are bleak and sad.
In the past, the liquor industry has always been regarded as an important target of value investment because of its unique business model, extremely high gross profit margin and return on equity, and ancient cultural and historical attributes.
However, the more ghost stories there are, the more ghost stories there are. Under the prevalence of "prohibition", drinking scenarios have decreased, young people do not drink, dealer funds are broken down, and other negative news has also become popular. At this point, "reducing frequency, reducing volume, and downgrading" has become three keywords in the first half of the year.
At the same time, in the capital market, performance collapsed its market value, the liquor industry index was broken down, and it successfully underperformed the market, falling behind in this bull market.
Now, due to various negative impacts, many friends have regarded short-term sales, distribution strategies, and profit forecasts as the focus.
But just like playing Go, you always have to look forward a few more steps or dozens of steps. Only with a forward-looking vision can you discover the current opportunities.
To put it bluntly, there are two questions to ask: Are the current difficulties in the industry long-term? Who can take the lead in the future in the future in the process of change?
Understanding these two issues will enable you to more clearly understand the present and seize future opportunities.
//Industry is still in the "deep winter" or the "glacial period"
In the first half of the year, the biggest impact on the industry in the short term was the super black swan's "prohibition", which directly led to a sharp decline in consumption scenarios.
In addition, there are three main problems that the liquor industry needs to face for a long time: loss of young groups, contraction of consumption scenarios, and inverted price under the imbalance of supply and demand.
It can be seen that the current liquor industry is facing considerable troubles in both long-term and short-term.
However, our conclusion is that none of these problems can affect the long-term value of top famous wine companies.We look at it one by one from short to long.
Look at the "prohibition" with the greatest short-term impact, which is the root cause of the pressure on wine companies in Q2.
Just just as the policy suppressed the gaming industry first and then corrected it, the "prohibition" is constantly correcting it. On the one hand, this comes from policy self-correction, and on the other hand, the pull of the liquor industry on the economy is also an important factor.
For example, from a macro perspective, the promotion of liquor to the catering industry cannot be ignored:
In June, the year-on-year growth rate of national catering retail sales fell sharply to 0.9% from 5.9% in May. At the same time, the sales of tobacco and alcohol in June were only 51.6 billion, a year-on-year decline of 0.7% (+5.5% from January to June).
In addition, most liquor companies are one of the local pillar industries, and annual dividends, taxes, and job creation are all important parts of local income and economic structure.
So, objectively speaking, the "black swan" event is unsustainable.
Solved short-term questions, and then we look at three long-term problems:
1. Loss of young people
The mainstream view is that the new generation of young people is infected by Western education since childhood, and the high economic development of China in childhood, and the parents need to drink a lot of alcohol and socialize, which leads to frequent drinking and hangovers. Many people believe that liquor is "the bad hobby of the older generation."
In addition, the dregs culture of urging alcohol in liquor and obedience testing is also deeply disliked by this generation. Therefore, when choosing alcohol, I prefer to drink beer or foreign wine, and liquor has begun to be abandoned by young people.
It sounds very reasonable at first glance, but upon closer inspection, it seems to be a false proposition. Rather than losing it, they have never existed.
We can equate liquor with spirits. It is a high-end beverage of the cultivation system to a certain extent. Only with the growth of age, experience, wealth, and social status and the deterioration of taste can we appreciate its mellowness.
To put it bluntly, it is the same all over the world, and the age group of drinking spirits is similar, and young people have never been the main force.
So, it is better to say that young people stop drinking, it is better to say that after the consumption scenario shrinks, the market cannot find new growth and it is just to scare itself.
2. Consumption scenarios shrink
The liquor industry has a high correlation with the economic cycle, so the scenario shrinkage exists in two aspects:
First, under the new economic cycle, traditional projects such as infrastructure projects and real estate have decreased, and commercial activity scenarios have decreased accordingly. Wine is a warming agent and lubricant for commercial relations, and banquets and gifts have also decreased.
The second is the downward cycle of real estate prices, and the shrinking of middle-class assets has led to a weakening of consumer confidence, daily drinking, and reduced relationships and communication.
These two points are problems that cannot be solved in the short term. my country's economic structure has now entered a new stage, and infrastructure and real estate construction are also close to saturation, which is irreversible.
At this point, liquor companies have indeed passed the golden age of comprehensive and rapid growth.
But just like the steel industry in the previous cycle, after experiencing supply-side reform, the industry experienced pains, cleared out some of its backward production capacity. The leading companies and some well-managed waist companies actually lived more well, and their profit levels were even better than before.
For example, the dairy company next door has faced a dilemma similar to liquor in the past two years, but Yili, the head and Xin Dairy, the waist, have seen a significant rebound this year.
Combining the experience of various industries, with the reduction of total demand, the Matthew effect will become more obvious, and head and waist companies will be more competitive.
3. Imbalance in supply and demand inventory backlog
In the first half of the year, the water level of the landslide lake in the liquor industry further increased.
According to statistics on financial reports, 15 companies experienced year-on-year inventory growth in the first half of this year, accounting for nearly 80%. Further calculations show that the industry's average inventory digestion period reached 3.7 years, while some companies even exceeded 10 years.
About the inventory landslide lake, there is actually no need to worry too much, as this is due to the short-term macro-environmental unfriendly factors.
Moreover, inventory is also one of the advantages of the liquor industry, because liquor inventory does not require depreciation, and even the value will increase with time. After the accumulation of the golden age, wine companies are rich in wealth and abundant cash flow, and the damsil is not fatal in a short period of time.
When the policy is corrected and the economy returns to the growth track, the landslide will naturally guide itself.
Back to the first question at the beginning of the article, are the difficulties in the industry long-term? There should be obvious conclusions here.
Although liquor is affected by the economic market, it will also affect the economic market on the contrary. It is an important part of the local economic chain and is indispensable.
my country's economy has been around for nearly three years since this important node at the end of 2022. Whether it is data or somatosensory, it is in an orderly recovery, and the liquor industry will naturally feel the warmth.
But it cannot be ignored that the market has changed. Judging from the performance of T6, in addition to Yanghe Co., Ltd.'s "volume and price decline", the other five companies showed a trend of "volume reduction and price increase".
So, compared with the previous cycle of rising volume and price, there are new changes in the investment logic at this stage. This is our second question. Who can win in the future in the future?
//Traveling through the cold winter: new stories, new markets, new products
A careful friends should be able to find that the performance in the first half of the year was in a staggered distribution. The situations faced by high-end liquor, sub-high-end liquor and low-end liquor are different, so the investment logic is also different:
1. High-end liquor
In August, Moutai released an ultra-high-end commemorative wine, priced at 7,000 yuan and limited to 25,568 bottles. It was sold out in just two minutes, bringing about 179 million yuan in sales revenue to Moutai.
In the depression, this intuitively reflects the advantages of two high-end liquors:
First, the customer base of high-end liquor is relatively stable and is relatively less affected by the macro. To put it bluntly, the customers of high-end liquor represented by Moutai are mostly elites who are "not short of money".
This type of people may experience wealth shrinkage under the influence of the macro (and may also expand wealth), but the expenditure of high-end liquor is a drop in the bucket for them, and they do not pay attention to and restrain their own desires. This is also the reason behind the long queues in front of luxury goods sales stores when the economic crisis occurred.
Secondly, human nature is always the same, and the pursuit of a better life and a better material thing is endless. As long as high-end liquor can maintain extremely high quality, as long as high-end liquor can also play a role in lubrication of interpersonal and business relationships, the customer base of high-end liquor is just changing from one group to another.
For example, around 2012, the population of high-end liquor changed.
Therefore, the long-term demand for high-end liquor is still stable and growing. Tianyancha APP shows that Wuliangye and Kweichow Moutai have both positive growth trends in the first half of the year.
Of course, Kweichow Moutai is still a unique existence, and it is extremely simple to grow twice-digitally.
2. Sub-high-end liquor
When the liquor is upward cycle, the investment logic for sub-high-end liquor is to take over the supply of high-end liquor that cannot meet the demand, thereby achieving both volume and price increase.
This double-edged sword is the opposite in the downward cycle of liquor - sub-high-end liquor will drop in both volume and price due to the oversupply of high-end liquor.
This is like the younger brother following his elder brother to travel around the world. In the process of his elder brother's career booming, he can follow his elder brother to eat and drink spicy food, and live a happy life; when the elder brother encounters a crisis, it will inevitably be difficult for him. The elder brother often even safely survives the crisis at the expense of his elder brother.
But we can also see from the perspective of performance that I will grow. Shanxi Fenjiu and Gujing Gongjiu prove that sub-high-end liquor can still achieve rapid growth in the past two years.
This part of the growth comes from two aspects. On the one hand, it is the deep cultivation of the region. For example, Jinshiyuan and Gujinggong, which have strong growth in the past two years, are all the shares of other wine companies in the province.
On the other hand, in the nationalization, differentiated cards are played. For example, the popular nationwide were mainly strong fragrance and soy sauce flavor. Fenjiu relied on the fragrance type and a strong sales team to complete the nationalization process.
So, even if the industry is under pressure, a single company can achieve its own development by exploring its unique competitive advantages and seizing its competitors' market share.
3. Low-end liquor
The current consumption downgrade situation is a positive factor for low-end liquor companies. According to relevant statistics, Volkswagen catering wine has further declined from 100-300 yuan to 50-100 yuan price zone. This means that demand for low-priced wines may increase further.
But on the other hand, the competition for low-end liquor is also intensifying. In the upward cycle of liquor, wine companies focus on "how to sell products at high prices", and few companies will pay attention to the basic market of low-priced liquors.
After now in a downward cycle, some wine companies are beginning to favor low-priced wines. In the past, there was a breaking circle of the "Meijian" series of low-priced and low-level products that Jiang Xiaobai met the needs of young people. Later, Yanghe developed Yanghe Daqu Guangbo Liquor with high profile, and ended up competing with the characteristics of "high quality, high appearance, and high 'heart-to-price ratio'".
In the future, more and more players in the low-end liquor industry (especially sub-high-end liquor companies, the sale of low-end liquor is crucial to strong-scent and fresh-scent liquor companies) will participate.
However, the competitive landscape of low-end wines is relatively stable, and although there is room for growth in demand, it is relatively difficult for other wine companies to get involved under the long-term management of old players such as Bofen, Niulanshan, and Hongxing. For example, Yanghe Shares, in terms of performance, even with the help of JD.com, its performance at the beginning is not satisfactory.
To sum up, the investment logic of the low-end liquor industry is the growth in demand brought about by consumption downgrades, but as competition may gradually intensify, it is still necessary to bear the risk of excessive competition causing a decline in profits in the entire industry.
In general, in addition to high-end Moutai, sub-high-end and low-end liquor companies are still looking for incremental volume in the stock. If they want to achieve rapid growth again, they need to find an incremental market.
There are two parts of the increment, one is the overseas market and the other is the young people market.
In fact, some wine companies have started to do this. For example, Shuijingfang, Diageo, wholly-owned holdings of Shuijingfang Group in 2013, not only brought financial support, but more importantly, it provides them with mature international channel network, brand management experience and market access resources.
Shuijingfang's products can reach more international consumers through Diageo's global distribution network, especially the duty-free channels.
In terms of market, East Asia and Southeast Asia have similar eating habits as us. With the deepening of economic exchanges in the future, the development of this part of the market is worth looking forward to.
The other most important thing is young people. Nowadays, young people generally attach importance to individual values, that is, products that can bring me a sense of gain, belonging and other values are products that are meaningful to me.
Therefore, wine companies must change their business philosophy, increase their efforts in cultural cultivation, tell good brand stories, and do a good job in the dual quality of products and services, so that consumers can form unique feelings in the process of purchasing products, convey unique value, and form consumer stickiness, and then become the moat of wine companies.
Even companies like Shuijingfang have historical burdens and low management burdens, and their business transformation will be relatively easy in the future.
Finally, liquor can still provide a steady stream of cash flow, and is still a business that conforms to human nature. In the long run, the economy has resumed growth and the growth rate of residents' income has accelerated. The top famous liquors are still of great value after being siphoned.
Disclaimer: This article is based on the company's legal disclosure content and disclosed information, and makes comments, but the author does not guarantee the completeness and timeliness of the information. Also: The stock market is risky, so be cautious when entering the market. The article does not constitute investment advice, and it must be determined whether to invest or not.
