A man looks at the Wuliangye booth at the Beijing International Alcohol Drinks Expo. Nan Shan
Wuliangye, which literally means five-grain liquor, wants it all.
It is trying to consolidate its hold on the middle- and low-end market at a time when consumers are "trading down," while putting up a fight with archrival Moutai for the high-end segment.
The company earmarked nearly 300 million yuan last October to strengthen its foothold in the highly competitive health drink market and, in an apparent flight of fancy, is diversifying into the cutthroat fashion business.
While stock analysts have voiced interest in its ambitious strategy, they have remained skeptical of its practicability. "Every company is entitled to think big," said Xu Jinghuan from Industrial Securities. "But venturing into the fashion business seems a little far-fetched for a liquor producer."
The share price of Wuliangye Yibin Co Ltd, Shenzhen-listed arm of Wuliangye Group and the most promising sector of the group, underperformed the benchmark index in the past few weeks. Its shares fell 2.97 percent to clos at 14.38 yuan yesterday.
In Beijing for the annual session of the Chinese People's Political Consultative Conference earlier this week, Tang Qiao, Wuliangye Group's general manager and currently chairman of Wuliangye Yibin Co Ltd, unveiled the so-called "one+eight+nine" strategy of the Sichuan-based distiller.
In essence, it means that the group, its listed sector mainly engaged in liquor production and distribution, is planning to consolidate nine national and eight regional sub-brands, including Wuliangchun, Wuliangshen, Jinliufu, Liuyanghe and Jinjiu, that target the middle- and lower-end of the baijiu, or white liquor, market.
The "one" in the formula stands for renewed efforts to expand the share of its premium brand that bears the company's name in the high-end segment, at the expense of its rivals Moutai and Jiannanchun.
At present, the Wuliangye Group has a 5.7 percent share of China's baijiu market with annual sales of over 30 billion yuan. The group, together with Moutai and Jiannanchun, has a stranglehold of 70 percent of the market for premium brands, selling at prices ranging from a few hundred yuan to several thousand yuan a bottle.
Unlike Moutai, which has never wavered from its single-minded pursuit of dominance of the high-end segment, Wuliangye has always had a strong presence in all market segments through its various sub-brands. Diversity helped shield the company from the full force of the economic downturn that has forced many businesses to cut down on superfluous spending, including spending on liquor.
Figures compiled by China Jianyin Investment Securities showed that sales of up-market liquor in the last quarter of 2008 declined 20 to 30 percent from a year earlier, while total liquor sales increased by a year-on-year 18.43 percent in the three months.
Industry sources estimated that sales of premium liquor during Spring Festival in late January, the traditional busiest season for the industry, dropped even more heavily.
"It's obvious that the economic downturn has affected the sales of premium 'baijiu' business, while the sales of mid- to low-end liquor is getting stronger," said Shi Jiangang, consuming products analysts of TX Investment Consulting Co Ltd. "Wuliangye is apparently adjusting its product mix and market strategy to flow with the market trend," he said.
Sales revenue of Wuliangye Group in 2008 was 30.06 billion yuan, a year-on-year growth of 19.14 percent, while sales in January were up 16.28 percent year-on-year to 5.015 billion yuan.
Pursuing a different strategy, Moutai is stepping up production of premium liquor to strengthen its hold on the top end segment. It has said it would invest 1.46 billion yuan in 2009 to raise production capacity of premium liquor by 10 percent to 22,000 tons. The project is scheduled to be completed by 2014, when profit is projected by the company to reach 585.27 million yuan on sales of 1.27 billion yuan.
"Moutai is casting its sight into the longer term future and is making preparation for an eventual market recovery," said Shi.
Wuliangye has a different view. In addition to restructuring its product mix, the group is diversifying into other lines of business, including health drinks and garments.
It said sales of health drinks amounted to 700 million yuan since the launch last April, and it is planning to increase capacity by adding more production lines this year.
In October 2008, the group reached an agreement with Giant Investment Co, a domestic healthcare food investment operator, to jointly invest 300 million yuan over the next five years in health drink manufacturing and distribution. The company expects sales of its health drink business will reach 800 million yuan a year.
With little publicity and fanfare, Wuliangye Group also established a garment manufacturing unit in Chengdu with a registered capital of 420 million yuan. The unit is expected to begin operation soon. "We are confident that it will become one of the biggest clothing producers in southwest China," a company official said.
However, Xu from Industrial Securities said: "Given the gloomy situation in the clothes market and Wuliangye's poor experience in this sector, I am not expecting a positive outlook." Data on China TexNet showed that the country's clothes export hit $110.8 billion in 2008, just a slight increase of 1.1 percent over a year ago. And the figure is predicted to be negative 15 percent this year. Growth of domestic sales also dropped to 12 percent from 20 percent in 2007.
