Summary of Key Points
Moutai's performance in the first half of the year showed a slight increase in revenue but a decrease in profits, with the second quarter being even worse (revenue down 5.1% year-on-year and profits down 6.9%). This is the short-term cost of its reforms: on one hand, it has shifted more products from distributors to its own platform (such as iMoutai), but most of the products sold are the lower-priced standard Flying Apsaras; on the other hand, it has reduced the production of high-priced, non-standard wines (such as those with zodiac designs or special anniversaries), leading to a shift in revenue structure and a decrease in gross profit margins. To counter these pressures, Moutai has continuously raised prices during the off-season. The success of its reforms in meeting annual targets will depend on actual sales volumes after the price increases, market prices, and the demand for non-standard wines, all of which are influenced by the overall demand for liquor in the industry.
I. The Cost of Reform: Why Are the Results Not Good?
Moutai's reform direction this year is clear: to reduce distributor inventory and get products directly to consumers, thereby gaining more control over data. However, this process will have a negative impact on short-term performance.
- Revenue only increased by 1.47% in the first half of the year, while profits decreased by 1.95%, with even more significant declines in the second quarter.
There are two main reasons for this:
1. Channel migration did not lead to corresponding growth: iMoutai's revenue in the second quarter was 18.7 billion yuan, nearly tripling year-on-year and accounting for half of total liquor revenue. However, revenue from other direct sales channels (such as its own stores) and distributor channels decreased by 8.2 billion yuan and 7.7 billion yuan respectively, meaning the additional income from iMoutai was offset by declines in other channels, resulting in a net reduction of 2 billion yuan in total liquor revenue.
2. The products sold have become cheaper: Moutai has increased the supply of standard Flying Apsaras on its platform (the most popular product), while reducing the production of high-priced non-standard wines. Previously, distributors were required to sell non-standard wines alongside Flying Apsaras, so even if these non-standard wines did not reach consumers, they still counted as revenue for Moutai. Now that non-standard wines are sold on a commission basis (only when they are actually sold), sales have declined. Since the price of standard Flying Apsaras is lower, the overall revenue structure has shifted towards lower-priced products, affecting profits.
II. Product Structure Adjustment: More Flying Apsaras Sold, but Fewer Profits
The increased production of standard Flying Apsaras is a key part of the reform, but it has lowered overall profits.
- Contradiction between sales and profit structure: Although terminal sales of standard Flying Apsaras increased slightly in the second quarter, and the price of Moutai 1935 also rose by more than 10%, the shipment volume of non-standard wines decreased by 30%. The revenue from a bottle of standard Flying Apsaras is much lower than that of zodiac or special anniversaries, so despite higher sales volumes, total revenue did not increase.
- Gross profit margin decline: Moutai's gross profit margin dropped from 91.3% to 89.6% in the first half of the year and continued to decline in the second quarter. This is because increased sales volume leads to higher costs (materials, labor, etc.), and since the new sales are mainly from lower-priced products, revenue growth has not kept up with cost increases. Management acknowledges that this is a necessary part of "deflating bubbles" and believes it will be healthier for the long term, although the short-term financial results will be unfavorable.
III. Price Increases During the Off-Saison: Why Not Raise Prices During the Peak Season?
The space for channel migration is nearly exhausted (iMoutai already accounts for 80% of direct sales), so Moutai has shifted from adjusting product distribution to adjusting prices, choosing the off-season of July-August for the increase. There are three reasons behind this:
1. Countering structural pressures: Two price increases in March and July raised the contract price of Flying Apsaras from 1269 yuan to 1369 yuan, and the retail price on iMoutai from 1539 yuan to 1639 yuan, with self-operated stores even seeing a price increase to 1759 yuan. Price increases can directly boost revenue and offset the effects of reduced non-standard wine sales and the shift in revenue structure.
2. Stabilizing price expectations: By raising prices before the peak seasons of Mid-Autumn Festival and National Day, Moutai aims to prevent large price fluctuations during these periods, giving distributors confidence that they can maintain stable prices when selling products.
3. Distinguishing channel roles: The prices in self-operated stores are about 100 yuan higher than those on iMoutai. This serves two purposes: it provides a reference for external liquor stores (to prevent market prices from falling too low) and makes iMoutai more attractive to consumers, encouraging them to purchase products on the official platform and providing Moutai with more consumer data.
IV. The Future: Whether Reform Will Succeed Depends on Real Demand
Moutai's reforms have moved from reorganizing channels under its control to a period of verifying market acceptance. Several key factors will determine success:
1. Will sales decline after price increases: Even though prices have been raised, if consumers find them too high and choose not to buy, the resulting decrease in sales could offset the benefits of the price increases. For example, it is difficult for the wholesale price of Flying Apsaras to stabilize at 2000 yuan this year; it will take time for inventory to be sold out and more people to actually start consuming the product.
2. Can demand for non-standard wines recover: Non-standard wines previously relied on bundled sales; now, their success depends on actual consumer demand. Only if consumers are willing to pay for high-priced non-standard wines can Moutai's profits recover.
3. The overall liquor industry situation: Goldman Sachs suggests that the worst part of the inventory reduction phase for the liquor industry may have passed, but recovery is just beginning, with potential sales volumes in 2030 only 75% of current levels. No matter how strong Moutai is, its reforms will be limited by the overall demand trend in the industry; if the total consumption of liquor decreases, the effects of these reforms will be diminished.
Conclusion
Moutai's reforms are aimed at long-term health (reducing excess inventory and gaining better data control), but they come with short-term performance challenges. While price increases are being used to mitigate these issues, the ultimate success depends on whether consumers are willing to pay the higher prices and whether the overall liquor market demand recovers. It's like an exam: Moutai has already revised its own policies (by adjusting distribution channels) and now needs to let the market determine the effectiveness of its reforms (through consumer acceptance).