Liquor companies are employing three ‘magic tricks’ to sustain superficial performance:
1. Abandoning the traditional ‘payment before delivery’ model, leading to a 33% increase in accounts receivable and a 21% decline in contract liabilities. The operating cycle has exceeded 700 days, reaching a decade-high. 2. Wholesale prices have dropped by 12%, with companies betting on volume growth through discounted series liquors. Despite rising sales expenses, net profit margins show almost no growth. 3. Despite market headwinds, companies like Moutai are expanding their dealer networks, adding numerous channel partners to artificially inflate performance. In fiscal year 2024, the A-share liquor sector reported a revenue growth of 7.29% and a net profit growth of 7.41%, making it the only sub-sector in the food and beverage industry to achieve double-digit growth for ten consecutive years. On the surface, the sector appears to defy cyclical downturns. However, the reality is starkly different: from industry leader Moutai to laggard Yilite, stock prices have remained depressed for an extended period. Is the market failing? Unlikely. A closer look at financial data and operational decisions reveals that liquor companies are resorting to ‘commercial and data magic’ to maintain a facade of prosperity. 01 Magic Trick One: Extending Payment Terms, Abandoning ‘Payment Before Delivery’ The accounting equation ‘Assets = Liabilities + Equity’ is widely known. Similarly, the income statement, measured over time, follows a logical relationship: operating profits and operational data should not deviate significantly. Any notable discrepancy can impair long-term growth. In 2024, liquor companies’ income statements exhibited such deviations. While revenue and net profit growth met expectations and outperformed the broader consumer sector, operating days surged by 62 days—the highest increase in a decade—with the average operating cycle surpassing 700 days, indicating a misalignment between performance and operational metrics. Breaking down the operating cycle, two factors stand out: a rapid increase in inventory turnover days and a decline in contract liabilities coupled with a rise in accounts receivable, creating a scissors effect. Inventory, a unique aspect of the liquor sector (due to the appreciation of aged liquors), has long been a focal point of industry research. Over the past year, net inventory growth soared by nearly CNY 20 billion, a record high. This abnormal growth cannot be attributed solely to normal production cycles for aged liquors. A review of A-share liquor companies’ annual reports reveals a recurring statement: ‘According to National Bureau of Statistics data, in 2024, the output of large-scale liquor enterprises nationwide reached 414…’470,000 kiloliters, a year-on-year decrease of 1.8%. If we take liquor companies with higher product values as samples, it becomes evident that the growth rate of production is indeed modest. The overall production of Moutai, Wuliangye, and Luzhou Laojiao declined by 3.4% last year (primarily due to Wuliangye’s underperformance). With no significant increase in production, the rapid growth in inventory value can only indicate one thing: regardless of revenue and profit data, baijiu sales are stagnating.
Examining another factor in the operating cycle reveals a more significant issue: the industry’s long-standing practice of “payment before delivery” and zero accounts receivable is beginning to waver. At the end of last year, media reports highlighted that due to sluggish sales, manufacturers relaxed their “payment before delivery” policy to boost sales figures by accelerating the sales process. In Q1 of this year, excluding Moutai (affected by subsidiary acceptance bills), accounts receivable for 19 liquor companies increased by a cumulative 1.4 billion yuan. While the absolute increase is small compared to revenue growth, the 33% quarter-on-quarter rise in receivables is noteworthy. Figure: Q1 2025 Accounts Receivable Trend for Liquor Companies, Source: Choice Financial Terminal Meanwhile, contract liabilities for the liquor industry in Q1 also showed a significant decline, dropping by approximately 11.7 billion yuan, a quarter-on-quarter decrease of 20.93%. Even accounting for seasonal effects, this marks the most pronounced decline in contract liabilities for liquor companies in recent years. Figure: Q1 2025 Contract Liabilities Trend for Liquor Companies, Source: Choice Financial Terminal A divergence between accounts receivable and contract liabilities is a common industry phenomenon. Among 20 liquor companies, 18 saw a quarter-on-quarter increase in receivables, while 15 experienced a decline in contract liabilities. However, compared to peers, contract liabilities remain at an absolute high, and the proportion of receivables is relatively small. In summary, liquor companies have temporarily adjusted operational rhythms to enhance profit statements. However, this may signal an industry inflection point, as trends, once set, are difficult to reverse. 02 Magic Trick Two: Lower Wholesale Prices, Aggressive Marketing, and Structural Adjustments to Maintain Sales As a “hard currency” with both consumer and financial attributes, baijiu has long involved more stakeholders than other consumer goods, leading to a “price over volume” strategy among liquor companies. However, since last year, leading companies (especially Moutai) have broken the notion of irreversible wholesale prices, with prices falling by around 12% annually. This has triggered a new round of price declines across the industry, affecting both mid-to-high-end and premium segments.It is difficult to determine whether this is a result of market leaders abandoning the traditional ‘price before volume’ approach to maintain sales after channel reforms.
Chart: Trends in wholesale prices of premium and sub-premium liquor, sourced from Dongwu Securities Research Institute. Meanwhile, based on the overall disclosure of 2024 annual reports, the growth rate of mid-to-high-end categories continues to decline. Among 20 liquor companies, nearly half showed a significant drop in the proportion of mid-to-high-end products. A horizontal comparison reveals a clearer picture. Compared to 2023, in 2024, excluding the abnormally operating Rock Co., Ltd. and Tianyoude and Jinzhongzi, which did not disclose their proportions, only Huangtai among the 17 companies avoided a decline in mid-to-high-end growth (though it combines baijiu and wine, with a small base). Chart: Growth rate difference in mid-to-high-end categories among liquor companies in 2024 vs. 2023, sourced from Jiuye Jia. Lowering price ranges and betting on series products will undoubtedly disrupt the long-maintained brand structure of baijiu, leading to fiercer competition. In 2024, the overall sales expense ratio of the baijiu sector increased. Excluding Rock Co., Ltd., 11 out of 19 companies saw a rise in their sales expense ratio. Although the gross profit margin of the baijiu sector grew by 0.76 percentage points in 2024, the net profit margin barely improved, a trend that continued into Q1 2025. From the perspective of the gross-to-sales difference, the performance of liquor companies in Q1 2025 was far from ideal. Among 20 companies, 12 experienced negative growth in this metric, with significant declines. Chart: Trends in gross-to-sales difference changes among listed liquor companies in Q1 2025, sourced from Choice Financial Client. In its summary of the baijiu industry, CICC noted that key indicators linked to baijiu consumption and financial attributes—such as growth in per capita disposable income and commercial housing prices—remain weak. Thus, baijiu companies face a binary choice between price and volume. Consequently, most companies have opted for lower price ranges and more series products, aiming to differentiate brands by prioritizing ‘price before volume’ for premium products and ‘maintaining volume and performance’ for mid-to-low-end products. However, the gross-to-sales difference data suggests that the negative impact of price range compression is substantial. Relying on marketing and pricing power for growth seems only a short-term solution. Magic 3: Seeking Support from ‘Brothers’ in Tough Times. As one of the most ‘brotherhood’-driven industries in the consumer sector, baijiu companies understand the adage: ‘A single person cannot carry a heavy burden, but many can move mountains.’ Over the past decade, retail channel reforms have intensified, with self-operated online platforms, traditional e-commerce, and even short-video live streaming diluting the share of traditional offline retail channels—baijiu is no exception. In response, the offline channel expansion of liquor companies has slowed, particularly for premium and sub-premium baijiu (except for Fenjiu, which is in a national expansion phase).Taking Moutai as an example, after large-scale streamlining, the number of domestic dealers decreased by 907 from 2018 to 2023, accounting for over 30% of the entire dealer system. However, in 2024, Moutai reversed its previous strict control over dealers and expanded its network by adding 67 new dealers.
Among 18 continuously operating liquor companies (excluding abnormal operations like Rock Stock and wine-focused Huangtai), 14 saw significant growth in dealer numbers over the past two years. High-end and sub-high-end brands, which rely more on offline channels and previously strict dealer standards, experienced faster growth in 2024. Figure: Changes in Liquor Companies’ Dealer Numbers (2023-2024). Source: Choice Financial Terminal, Company Reports Is this dealer expansion a normal optimization of the distribution system, or are liquor companies sensing industry challenges and seeking to improve short-term growth pressure by adding more partners? We lean toward the latter for two reasons: 1. Distribution system optimization typically involves both additions and exits, but the net increase in dealers over the past two years has been significant. For instance, Moutai added 67 dealers last year while only 4 exited. 2. In 2024, 13 of the 18 liquor companies reported higher revenue growth in direct sales (or new/online channels) compared to traditional dealer channels. Expanding traditional channels under such conditions offers lower capital returns than online channels. If this were merely a distribution reform, it would likely replicate the previous downsizing trend rather than opening up to new partners. Figure: Revenue Growth Comparison Across Channels (2024). Source: Company Reports Why does loosening restrictions on traditional dealers improve short-term performance? The reason is obvious: more dealers allow for greater inventory pressure and provide liquor companies with more “adjustment” space. Traditional local dealers contribute far more to performance than online or out-of-region partners. For example, among 10 regionally focused mid-to-high-end liquor companies, 7 reported significantly higher revenue growth within their home provinces compared to broader markets in 2024. Figure: Revenue Gap Between Home and Out-of-Province Markets for Selected Liquor Companies. Source: BOC Securities Undoubtedly, liquor companies are relaxing dealer standards because these once-overlooked partners have now become crucial supporters during difficult times. Over the past few years, dealers benefited from a narrower distribution system, making it relatively easy for liquor companies to recruit new partners and expand their dealer networks now.Over time, the so-called ‘brothers’ bound by ‘common interests’ find it increasingly difficult to share hardships as profit margins narrow. In the annals of business history, there has never been a magic trick to turn stone into gold, and baijiu is no exception.
In summary, extending payment terms, cutting prices for volume, and counter-cyclically expanding distribution channels—these short-term ‘magic tricks’ may maintain a glossy facade, but they cannot hide the truth of mounting sales pressure in the baijiu industry. The inflection point has arrived. Source: Jinduan, original title: ‘The Magical Era of Baijiu’ Risk Warning and Disclaimer: The market carries risks, and investments require caution. This article does not constitute personal investment advice, nor does it consider the specific investment objectives, financial situations, or needs of individual users. Users should evaluate whether any opinions, views, or conclusions in this article align with their particular circumstances. Investments made accordingly are at the investor’s own risk.
