Moutai Leads Decline: What Lies Ahead for the Industry?

 

The A-share liquor sector continues to decline, with Moutai's current intraday drop exceeding 2%, bringing its total market value down to 1.6 trillion yuan.

From the consumer perspective, following the Mid-Autumn Festival, the National Day holiday is approaching, which is the peak sales season for liquor. According to past trends, liquor sales during the Mid-Autumn and National Day periods should account for 20-30% of the distilleries' annual sales. However, the latest news indicates that this year's Mid-Autumn Festival sales have dropped by half compared to last year, with high-end liquors such as Moutai and Wuliangye being the most affected.

According to data from the first half of 2024, the market fluctuations of Feitian Moutai are quite pronounced, with the end-market price once falling below 2300 yuan per bottle.

As an industry benchmark, Moutai is a high-value product that combines luxury, collectibles, and social goods, and its price trends affect every nerve in the industry. The current downward trend in Moutai's prices also signifies that the liquor industry has moved away from the mythological era and entered a "calm period" for the industry.

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Regarding the price drop of Moutai, the market is in an uproar, with the "sunset of liquor" theory gaining momentum. UBS even boldly predicts that "the wholesale prices of Moutai and Wuliangye will drop by another 50% in the next 26 years."

The predictions of institutions still need market validation, but what is intriguing is, has the liquor sector truly reached its sunset moment?

From the mythological era to the darkest moment?

The ancients said: A tree that towers above the forest will be broken by the wind; a pile that stands out from the shore will be washed away by the rapid current.

The liquor industry is no different; after a peak period, a decline is inevitable.

During the three years of the pandemic, liquor, like masks, entered a period of frenzy. High-end products became a "feverish tide." Both large and small brands increased their prices wildly, especially high-end brands. A bottle of Feitian Moutai, which was priced at 969 yuan at the factory, sold for over 3000 yuan in the market, reaching an unprecedented height.

In the capital market, liquor stocks were also highly favored, with the market values of Moutai and Wuliangye both breaking through the "trillion" mark in 2020.

However, everything is cyclical, and liquor has its own cycles.

During the pandemic, market demand was abundant. Due to circulation issues, distributors could not supply goods in time, leading to a situation where market demand exceeded supply, causing liquor prices to soar. For distilleries, price increases meant higher gross margins and a trend towards high-end products, leading to stockpiling by various distilleries.

Liquor merchants who hoarded liquor believed that high-end liquors had collectible value, expecting that after the pandemic, economic recovery would lead to increased demand and normal circulation for sales.

But the results are often not as expected.

Now, market demand is not meeting expectations, and the large amount of liquor hoarded by distributors cannot be sold, leading to the current "high inventory" situation in the liquor industry and price inversion.

In the long term, competition in the e-commerce industry and demographic changes are also becoming shackles for liquor enterprises.

Recently, major e-commerce platforms have launched billion-yuan subsidy activities to attract new customers and increase user stickiness, with high-end liquor becoming an important category for attracting traffic.

High-end liquor, as a consumer product, is very special, not only having consumer attributes but also financial attributes, so scarce liquor will never lack traffic.

For example, Moutai.

Currently, a bottle of Feitian Moutai is priced at 2488 yuan on Douyin, 2488 yuan on JD.com, and 2304 yuan on Taobao with purchase restrictions. According to Tai Media reports, the wholesale price of Feitian Moutai (original) 53%/500ml in 2024 is 2535 yuan per bottle.

The price inversion phenomenon in the liquor market is no longer a rare occurrence, but if platforms continue to wage price wars for traffic, the price pressure on traditional channels will also increase, which is undoubtedly a double blow to the entire liquor industry ecosystem.

In the liquor industry, quantity and price are always the top priorities. If the relationship between quantity and price is not handled properly, it will not only hurt the channels but also potentially affect brand value.

Looking ahead, the future of liquor's audience is worrisome.

As more post-00s enter the workforce, the call to reject the liquor culture begins to sound. First, young people tend to view drinking liquor during meals as a display of authority by leaders and elders, which they naturally resist. Second, with the booming market for beverages, there are more and more alternatives to liquor. Compared to the spiciness of liquor, young people are increasingly inclined towards sweet drinks and low-alcohol fruit wines, such as the popularity of coffee and various milk tea shops.

In summary, young people do not particularly enjoy drinking liquor.

Additionally, the issue of an aging population will also affect the basic consumer base of liquor.

Starting from 2022, the number of elderly people will continue to increase, and human tolerance for high-alcohol beverages will decrease with age, leading to less consumption. Statistical data show that the main consumer group for liquor in China is still the post-70s and post-80s generations. However, the post-70s are nearing retirement, and the post-80s are already in their 40s.

Whether the post-90s and post-00s can carry the banner of liquor consumption in the future is still a big question mark.

Faced with various difficulties, liquor companies, considering the overall situation of the industry, have taken decisive action.

The first issue to address is the high inventory problem.

On July 25th this year, Guizhou Moutai held a meeting where Moutai proposed "three transformations": the first is a customer-oriented transformation, aiming at unicorns, specialized and new, and small giants to cultivate a new consumer group; the second is a scene transformation, targeting potential industries and future industry developers, as well as developing family and friend gatherings; the third is a service transformation, shifting the marketing approach from "birds of a feather flock together" to "people divided into groups."

Moutai also stopped shipping Feitian Moutai in boxes of twelve bottles, simultaneously abolished the case-breaking sales, and stopped shipping the 15-year and boutique series of Moutai aged liquor.

Moutai's various measures are bound to stabilize prices and reduce inventory, which also provides positive confidence for the downstream channels of the liquor industry.

At the same time, various liquor companies and their distributors unite to face the industry's adjustment cycle together.

Luzhou Laojiao General Manager Lin Feng stated that he personally opposes the behavior of crazily pressing goods onto distributors and end consumers for short-term business goals, which destroys the entire industry's liquor prices, leading to a market collapse, and that each market collapse requires a long time for the brand to recover. He believes that "it is very important to do a good job in the market on the basis of benign development."

As early as 2022, many liquor companies issued statements expressing that they "do not assume any responsibility" for the sale of liquor on unauthorized internet platforms. This behavior by liquor companies aims to protect distributors from the impact of competition from e-commerce platforms.

It can be seen that liquor company executives are speaking out to protect the industry's ecosystem. Although facing an industry crisis, the entire industry chain, from upstream to downstream, is united in overcoming difficulties together.

 

Will it collapse or "bounce back from the bottom"?

One of the second sister's judgments on the liquor sector is that the cyclical nature of liquor has not yet reached an inflection point, and it will still be in a difficult period in the short term.

However, as business activities increase, the consumer market should be relieved. At least for now, the liquor industry will not become a sunset industry overnight, nor will it experience the same crazy growth period as in the past.

On the consumer side, although the Mid-Autumn and National Day holidays will bring some market benefits, they are still not enough to solve the inventory problems faced by most liquor companies.

From this year's financial reports, it can be seen that the contract debts of various liquor companies have decreased in the first half of the year, and the phenomenon of high industry inventory has not yet reached an inflection point.

The liquor industry needs time, and market rebound also needs time.

In the long term, the intensification of competition in the stock market will make the liquor industry more differentiated.

Price inversion will further squeeze the survival space of small brand liquor companies by large brand liquor companies. The Matthew effect in the liquor industry will be more prominent during this time, and the dumbbell shape of the industry will also be displayed.

Of course, after a new round of cyclical adjustments, there will also be new structural opportunities.

For example, the value of online channels needs to be further explored.

Online channels are a weak point for liquor companies. How to effectively develop online channels while ensuring that traditional channels can be utilized and effectively controlled is a challenge that every liquor company must face in the future.

Additionally, beyond new channels, there must also be new markets.

In the long run, how liquor companies find new consumer groups is the key to whether the liquor industry can continue to forge ahead. The difficulties in real estate have had a great impact on liquor sales, and Wuliangye has begun to explore overseas markets to find new consumer groups.有条件的品牌出海，也许是一个不错的增长路径。

Liquor itself is an addictive product and will still have loyal fans in the next twenty years, which also ensures that liquor companies will not become a sunset industry; this is just a deep V-shaped adjustment.

The future lies in how to find new incremental groups, which is the key to whether the liquor industry can continue to develop upwards. This process cannot be achieved overnight, so the next step should be a long-lasting battle.

The liquor industry is a century-old industry that has weathered many storms and has always been able to turn danger into safety, not by accident.

As a consumer product, liquor caters to and satisfies human needs. The older the wine, the more fragrant it becomes, and what is settled is not only the aroma but also the value of the brand and culture.

At the end of the 20th century, the liquor industry successively experienced the 1997 Asian financial crisis, the Shanxi Shuozhou malicious fake liquor case, and the national restriction on liquor production, which severely impacted the industry. However, Moutai and Wuliangye emerged as high-end brands, with Moutai soaring to the top and establishing its position as the industry leader, thus starting a wave of high-end liquor.

For liquor companies, transformation brings not only pain but also great opportunities.

After the industry adjustment period, whoever can overcome these challenges will gain greater benefits in the next cycle.