Dealers are eager to cash in, how serious is the price inversion of high-end Baijiu? Wuliangye is also hard to avoid Spring Festival | Baijiu | High end

Recently, the news about the spread of Baijiu price upside down has stirred up the liquor market.

On June 19, the China Alcoholic Drinks Association released the 2023 Mid term Research Report on Chinese Baijiu Market, pointing out that since the 2023 Spring Festival, Baijiu enterprises have high channel inventory and slow dynamic sales. Affected by this, the prices of first and second tier Baijiu have declined to varying degrees or even inverted.

On June 20, many insiders analyzed to the surging journalists that the core of the inverted price of Baijiu lies in the imbalance between supply and demand. Some business people claim that price inversion is a normal phenomenon and has little impact on the company's own production and operation.

The price of first and second tier Baijiu is inverted?

The China Liquor Industry Association pointed out in its report that although listed companies have performed well in their 2022 financial reports and the first quarter of 2023, this is a structural prosperity driven by famous liquor brands. Under the Matthew effect of the strong, small and medium-sized brands and liquor merchants generally show signs of inventory compression, price inversion, consumption decline, and weakened expectations.

The report shows that after the Spring Festival, 40% of dealers believe that the consumption of Baijiu has decreased compared with the same period last year, while during the May Day holiday, 30% of dealers believe that the consumption of Baijiu has decreased. According to the report, the data basically confirmed the judgment that the dynamic sales of Baijiu after the Spring Festival did not meet the expectations. In addition, research shows that the inventory of top liquor companies has increased to varying degrees.

However, due to the slow marketing and high inventory, the prices of first and second tier Baijiu have declined to varying degrees since the Spring Festival, even upside down. The report points out that after the Spring Festival, except for Maotai, dealers were eager to monetize, resulting in some famous liquor brands and second and third tier brands having market transaction prices lower than the distribution prices, and a serious phenomenon of price inversion.

Regarding price inversion, on June 20th, a staff member of the Secretary of the Board of Directors of Wuliangye stated, "This is a normal phenomenon." According to their explanation, in recent years, under the epidemic environment, dealers have been purchasing goods. Although there are also sales every year, some dealers may have relatively tight funds, and they usually prioritize selecting wines that they can quickly ship and sell. The staff member admitted that everyone's expectations may not be as optimistic now, "so apart from Maotai, most of them are definitely a bit."

Liu Yang, Deputy General Manager of Wuliangye, stated at the shareholders' meeting that due to multiple factors, the price of "Puwu" has indeed been inverted this year, but he is confident in achieving a favorable price this year.

Cai Xuefei, an alcohol analyst and general manager of Zhiqu Consulting, pointed out to a reporter from Pengpai News that the so-called price inversion often refers to the selling price of a product being lower than the official guide price. In fact, this understanding is one-sided. "The official guide price is a benchmark price that belongs to the non rigid demand of the enterprise. Apart from Maotai, I have not seen any product sell at the official guide price."

Cai Xuefei emphasized that the industry generally believes that price inversion refers to sales behavior where the transaction price is lower than the cost price. "Sellers sell at low prices to recover funds, and the market transaction price is lower than the factory price."

Cai Xuefei explained that China's liquor industry adopts a typical multi-level distribution system, which leads to official guide prices, distribution prices, group purchase prices, supermarket prices, e-commerce prices, and catering prices for each product. There is a high price difference between different channels, so in actual sales, as long as the product prices are within a reasonable range, there is no problem.

Behind price inversion: high inventory and sluggish demand

"The reason for price inversion is the imbalance between supply and demand." Cai Xuefei believes that the epidemic has led to the disappearance of consumption scenarios, excessive inventory in the entire social channel, and weakened market demand. Several factors have all led to price inversion. Cai Xuefei estimates that more than 80% of liquor companies may be facing price inversion.

Zhu Danpeng, an analyst of China's food industry, also said that, from the perspective of China's Baijiu industry, except for Moutai, other Baijiu brands have been subject to price inversion to varying degrees. The core of this phenomenon is that supply exceeds demand.

According to Cai Xuefei, the Chinese liquor industry is currently facing problems of overcapacity, weak demand, reduced expectations, and high inventory, resulting in significant sales pressure.

The report shows that the alcohol consumption market experienced a wave of recovery during the Spring Festival, and the traditional off-season came earlier than before. According to tradition, dealers will restock after the Spring Festival, but this year this tradition has been broken. The traditional "business, group buying, and banquet" three carriages have not been able to go hand in hand. During the May Day holiday, only the banquet wine market performed well, indicating that channel inventory is at a high level and has not yet been fully digested during the peak season.

"Coincidentally, during the 618 shopping festival, many products began to vigorously promote in order to stimulate sales. It is normal for prices to be slightly lower and cannot be used as a basis for price inversion." Cai Xuefei further stated that for responsible liquor companies, even if there is price chaos due to poor sales, they will stabilize their product structure by controlling shipments, reducing tasks, or factory recycling.

Zhu Danpeng pointed out that no matter manufacturers, dealers, wholesalers or terminals, they have launched many activities to promote consumption. After the liberalization this year, it is good for China's Baijiu industry, but now the leverage of supply and demand has changed. "It is a long-term objective existence, not a new problem that has emerged in the past two years. The most important thing is how enterprises can gain an advantage in the competition, which should be good for leading enterprises."

The above-mentioned staff of Wuliangye also believed that the wine consumption for banquets and banquets this year may be relatively affected, but the wine consumption of Wuliangye is still dominated by family gatherings and friends' dinners, which is not very affected

It is worth mentioning that in addition to discussing the situation of price inversion, the report also pointed out that top enterprises are starting to exert efforts to sink into the market, further squeezing the survival space of small and medium-sized liquor enterprises.

The report points out that the market performance of products in the middle and low price range below 300 yuan is good, such as Bofen large single product under Shanxi Fenjiu and Xifeng Group's old green bottle Xifeng liquor, which are popular grain based liquors. The report shows that nearly 70% of the dealers and retailers surveyed believe that Baijiu in the middle and low price range of 499 yuan and below is currently popular.

Cai Xuefei added that the current phenomenon of price inversion is phased. "With the implementation of economic policies and the recovery of social consumption in the second half of the year, coupled with the destocking policy of enterprises, famous wines should achieve favorable prices in markets such as banquets and gifts."