China'S Wine Industry After The Bottom: Big Positive Line Or Big Change?

November, the harvest season.

No matter Ningxia or Huailai, the grape pressing season has ended. On November 27, the Great Wall Sanggan winery ushered in the annual sealing Festival.

According to the weather year report of wine grape in the eastern foot of Helan Mountain in 2020, the climate has more advantages than disadvantages in quality formation. In particular, qingtongxiazi production area is rated as "excellent" (the highest quality rating) in the eastern foot of Helan this year.

This month, domestic wine continues to win prizes in the competition. The six wines of Xige winery in 2018 won six gold medals in the 12th awsa (abbreviation for Asian wine competition). Changyu Cabernet ranked the first with 90 points in the world's best-selling wine brand blind competition held by drinks business, the world's leading wine media.

On November 20, Changyu shares (000869. SZ) rose and closed at 38.84 yuan for the second time in the year. The domestic wine leader's stock soared three days after the China Wine Industry Association announced that from January to October, the output of wine enterprises above Designated Size nationwide reached 320000 liters, up 4.6% year on year. Since 2013, domestic wine has stopped the decline in production.

One week after the trading limit of Changyu shares, the Ministry of Commerce issued announcement No. 59 in 2020, which preliminarily ruled that there was a causal relationship between dumping and substantial damage to the domestic wine industry. Since November 28, China has implemented temporary anti-dumping measures on wine from Australia packed in containers of 2 liters or less. The deposit ratio of imported companies and other Australian companies sampled is 107.1% - 212.1%.

A series of news favorable to the domestic wine industry made Sun Jian, general manager of Changyu, said at the Portuguese forum, a well-known forum in the industry, a month earlier that China's wine market has begun to show a big positive line and is expected to usher in a bottoming rebound.

However, under the background of consumption recovery and 5.5% year-on-year growth in food, tobacco and alcohol per capita in the first three quarters, domestic wine is experiencing a crisis: according to the semi annual report, only Changyu shares and Dynasty liquor (00828. HK) of 8 wine Hong Kong shares and A-share listed companies were positive, and 3 were given risk warning. In November, Wang Zhenhai, the controlling shareholder of St Weilong (603779. SH), was in debt, and his equity had just completed the second auction, and his control of the listed company changed.

It's half flame, half sea water.

It's not easy to climb the bottom of domestic wine. A great industry change is doomed to happen.

Changzhou, Jiangsu, supermarket red wine zone sales of brand domestic dry red wine. Visual China

Industry bottom

Domestic wine production turned a corner in October.

According to the statistics from the National Bureau of statistics, the output of domestic wine increased by about 15% year on year. In this month, the sales revenue of Catering Enterprises above Designated Size nationwide reached 437.2 billion yuan, a year-on-year increase of 0.8%, and the year-on-year growth rate changed from negative to positive for the first time in this year.

Affected by the continuous recovery of market sales in October, the cumulative production of domestic wine has finally returned to the growth track.

"This is the starting point of the big line." On October 23, Sun Jian made an industry judgment in the speech of the Portuguese community forum "on the dynamic marketing strategy of wine in the peak season at the end of the year". Since the peak production in 2012, the production of domestic wine has been declining for seven consecutive years; after the volume of imported wine reached its peak in 2017, it has also declined for three consecutive years. The industry will usher in a turning point after experiencing a trough and enter a period of rising and climbing.

He verified this trend from the market performance of Changyu shares. "Our sales have risen since May and June, and have basically recovered to the same level in September last year. It is not likely to be slightly better than that in the same period last year, but it will be slightly better than that in the same period last year He said that it can be judged that in the next few months, years or even longer, the rate will not be lower than the low point in the first half of the year!

For a long time, the revenue of Changyu shares accounts for more than one third of the revenue of wine enterprises above the designated size, and its revenue and profit are more than the total revenue and profit of other listed companies in the industry. The ups and downs of Changyu's wine industry are reflected to a great extent.

Compared with the changes in the industry, enterprises are proactive. In 2012, China's wine production peaked at 1.38 million kiloliters, a year-on-year increase of 16.9%. In 2011, Changyu's revenue reached a record high one year ahead of schedule, breaking through 6 billion yuan; after the "three public consumption" was restricted, Changyu ushered in a performance turning point in 2012, with revenue and net profit falling by 6% and 10.8% respectively year-on-year. In the following eight years, although the performance rebounded, the double-digit growth of the two economic indicators ended. However, it was only in 2013 that the industry began to show a downward trend in output.

Since 2018, the volume of imported wine has dropped, and China's wine market has entered a downturn adjustment period of domestic and import decline. One year later, the production of domestic wine fell back to the same level as that in 2005 - 450000 kiloliters, down 10% year-on-year.

This year, the wine industry has been most affected by the epidemic. According to the monitoring statistics of China report hall, the national wine production from January to February was 36000 kiloliters, down 67.6%, which was the lowest level in China's wine market for many years.

"The industry has bottomed out and can't go down any more." On November 17, Wang Qi, executive director of China Liquor Industry Association, told reporters in the 21st century economic report by telephone, but when it will recover and the output will continue to rise, it will take a long time.

Great changes

Although from January to September, the revenue and net profit of Changyu shares continued to decline year on year, but the sales situation improved. In the third quarter, the company's net cash flow from operating activities was 268 million yuan, up 78% year on year. On November 18, Liu Xin, deputy general manager of COFCO Great Wall wine, told reporters of the 21st century economic report that Great Wall wine has also continued a similar recovery trend.

The dawn of the head enterprises does not mean that the whole industry has ushered in the dawn.

To get out of the trough, China's wine industry has to go over three mountains.

At present, the controlling shareholder of Yijia wine company is facing the crisis of large shareholders. This is the first mountain.

Three of the eight wine listed companies wear hats, and St Huangtai, which produces wine, has been delisted. St Tong grape (600365. SH) and the Western venture (formerly st Guangxia, 000557. SZ), once the main wine industry has been reduced to a secondary industry. In the western region, 15000 mu of self owned vineyards are still available for lease, and the main business has been changed into railway transportation and warehousing logistics; after the restructuring of St Tong Portugal, it has become a private enterprise after two rounds of equity transfer, and its main business has been changed into an e-commerce platform for liquor through merger and acquisition. At that time, it was a special wine for the founding ceremony, but now the sales of medium, high and low-grade wine have declined in an all-round way. Tongpu shares was issued "other risk warning" in August. The amount of guarantee against the actual controller was 365 million yuan, and the amount that has not been released is 298 million yuan. The actual controller Yin Bing's shareholding in St Tong Portugal has been frozen by the judiciary, and the 100 million yuan real estate of the listed company has been sealed up.

The fate of St Chinese Portuguese (600084. SH) was similar. It was not easy to turn a loss into a profit. In April, the warning of delisting was lifted. As a result, he wore a hat again on May 11. The large shareholder Guoan group's liquidity is tight, and Guoan investment, the person acting in concert, holds the shares of St China and Portugal, which is involved in litigation and is waiting to be frozen.

St Veron (603779. SH) has changed its ownership. Like st Tongpu, St Weilong also illegally guaranteed 250 million yuan. In August, the shares held by the controlling shareholders of Weilong and Wang Zhenhai were respectively auctioned in the name of the controlling shareholder Wang Zhenhai. St Weilong was investigated by the Securities Regulatory Commission for violation of trust and approval.

In recent years, wine market plate is turbulent. First, St Huangtai was delisted from the stock market because of its substandard performance in May last year, and then many controlling shareholders of listed companies faced with capital shortage, so they took equity mortgage or illegal guarantee of listed companies. In the critical period of consumption upgrading and training young consumers, the management of the existing wine listed enterprises is generally older, such as Changyu shares, St Weilong, Mogao shares (600543. SH), Tongtian liquor (00389. HK), etc. most of the directors and management are over 50 years old, some are over 60 years old, and the talent echelon construction is lagging behind.

"Small volume, this is the disadvantage of domestic wine market." Zhang Yu's chairman Zhou Hongjiang once pointed out at this year's Moganshan forum. This is the second mountain in front of domestic wine. Liquor grabs the market, beer grabs profits, but wine is still making cakes. In the first half of the year, the sales revenue of wine enterprises above Designated Size reached 4.486 billion yuan, which was surpassed by the volume of yellow rice wine, which was only equivalent to the scale of Maotai liquor series in Guizhou.

From 2018 to 2020, the number of wine enterprises in the State Planning Bureau and the State Council will also decline, showing a downward trend in the number of 128 wine companies and 128 enterprises in the National Planning Bureau.

The industry is mired in losses, which is the third big mountain.

China Wine Association announced that in the first half of the year, wine enterprises above the designated size achieved a cumulative profit of 113 million yuan, down 63% year-on-year. Eight domestic wine listed companies only Changyu shares and dynasty wine two profitable.

In the first half of the year, Changyu achieved a net profit of 300 million yuan, a decrease of nearly 50% over the same period of last year. The owner of dynasty liquor industry should account for HK $140 million of profit, but the profit mainly came from the pre tax net income of land value-added obtained from the sale of Chateau.

The remaining domestic wine listed companies all suffered losses, shocking. St Weilong lost 137 million yuan, Tongtian liquor industry lost 70 million yuan, St China and Portugal lost 37 million yuan, St Tong Pu lost 12 million yuan

Because of the impact of the epidemic, the sales volume decreased. By September, sales did not change. Wine listed companies in January to September on the book, still most of the loss.

Only when the main business and enterprises are stable can the industry become bigger and stronger.

But behind the three mountains are the increase in inventory, shrinking production and falling gross profit margin.

Tongtian liquor disclosed that the company's inventory turnover days to the end of September was about 471 days, compared with 388 days in the same period last year, mainly due to the relatively long time for inventory realization. St Tongpu made it clear that the first half of the year to digest inventory, no grapes. In the first half of the year, Changyu's inventory increased to 2.9 billion yuan from 2.6 billion yuan in the same period last year. After the sale of the chateau, the production capacity of dynasty liquor industry decreased to 50000 tons from 70000 tons last year. In the first half of the year, Changyu, Tongtian and dynastic liquor industries had a year-on-year decrease in gross profit margin, which were 59%, - 38.9% and 30% respectively.

"We need to expand the market, but most wine companies are poor children and can't afford too much promotion expenses." Sun Jian said that business operators are sweating out of copper.

path choice

Die and live. After the decline of China's wine production has stopped, should we adopt a new way?

"Every enterprise should find its own orientation and road of survival and development under the new situation. China's wine market is undergoing a transition from fragmentation to cluster of top brands. It is believed that after the waves and sands, the future market will be some excellent, big and strong brands and small and beautiful brands coexist and coexist. " Sun Jian said at the Portuguese forum.

Liu Xin, vice president of COFCO liquor, also held a similar view. On November 18, he told the 21st century economic reporter by telephone that China's large market population and wine as an industrial product were not suitable for the French winery model as a whole. He believes that the brand enterprises represented by Changyu and great wall have developed for many years and already have a certain scale, which is more suitable for the development mode of Fuyi group in the new world countries. It integrates its own brand and acquired brand, and can either have vineyards or entrust planting; for boutique wine enterprises, it is more suitable to follow the model of French winery.

The 21st century economic report reporter noted that in the third quarter, in addition to Changyu and COFCO's continuous good sales, Yiyuan wine, which is positioned as a boutique wine, made a counter attack. In addition to the pre tax profit of 3.13 million yuan, the average selling price of a single bottle rose from 60 yuan to 80 yuan, and the gross profit rate increased from 39% last year to 48%.

Zhang Yanzhi, chairman of Xige winery, explained that the traditional Chinese wine sales chain is relatively long, the channel profit markup rate is relatively high, and the advantage of short chain of fine wine is very obvious. A shorter chain does not mean that you want to take out the intermediate profit and directly reduce the price, but to make the sales process better.

"Holding high the banner of Chinese local wine, we should tell our own unique stories and common stories of production areas and China, so that more consumers will fall in love with Chinese wine." He said.

"The two major groups in China's wine market, domestic wine and imported wine, should be in the framework of good competition and cooperation development, to see who can provide consumers with higher quality consumption experience, so as to seek their own greater development." Sun Jian believes that whether the slope of the Dayang line will be larger or smaller in different stages in the future depends on the changes in the domestic consumption environment and the efforts of all practitioners.

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