Summary of Key Points
The current liquor industry is experiencing profound changes in its distribution channels: dealers are generally unable to fulfill their quarterly purchase obligations (with most only completing 20%-30% of the required amount), leading to a distorted landscape where large distributors bear high inventory levels, while smaller and medium-sized dealers operate with zero inventory and focus on rapid turnover. The traditional growth model, in which manufacturers pressured dealers to stock up, has completely failed due to issues such as weak sales, inverted prices, and significant risks associated with expense reimbursement. Manufacturers are caught in a dilemma—unable to easily revoke dealer agreements, yet unable to find new dealers to take over the business. As a result, the industry's control is shifting from manufacturers to a tripartite balance of power involving manufacturers, dealers, and consumers.
Why Are Dealers Collectively Failing to Meet Quarterly Payment Obligations?
The reason is simple: they still have unsold inventory and are hesitant to take on new orders. For example, Liu Bo, a liquor dealer in Chengdu, explains that while contracts require the purchase of 100 boxes, most dealers only buy 20-30 boxes, considering it a form of cooperation if they manage to meet half of the requirement. Jiang Bin, a dealer from Xinjiang, notes that local retailers are even unwilling to hold any inventory at all, preferring to purchase directly from secondary suppliers when customers place orders. Sales are slow due to an overall poor economic environment; business banquets and wedding celebrations have decreased, and once-dominant large customers now purchase only small quantities, meaning 10 boxes might last for half a year. Instead of holding inventory and tying up capital, dealers prefer to sell as much as possible, even if it means sacrificing some of their annual bonuses.
Channel Division: Large Distributors Bear the Burden of Inventory, While Smaller Dealers Operate with Minimal Stock
Dealers have split into two groups:
- Large/Digital Distributors: These were closely aligned with manufacturers in earlier years and took on most of the purchasing tasks, accumulating large inventories. For instance, a major soy sauce-flavored liquor brand's distributors are facing excess inventory on the market. Older distributors of brands like Guotai are in an even worse position; they purchased goods at high costs when prices were high, and now they can't sell them at current prices, resulting in losses.
- Smaller/Medium-sized Dealers/Retailers: These have minimized their inventory to nearly zero. They do not purchase directly from manufacturers but obtain goods from the market (e.g., from secondary suppliers). This approach avoids capital investment, and the cost per bottle is more favorable since they can buy at lower prices than what larger distributors are willing to sell.
The Traditional Inventory Pressure Model Is Failing
There are three main reasons for the failure of this model:
1. Weak Sales: Poor sales at the retail level affect dealers. With a weak economy, business banquets and personal consumption are more cautious, leaving inventory sitting in warehouses with no buyers.
2. Inverted Prices: In the past, rising liquor prices meant profits from stockpiling; now, falling prices result in losses. For example, if the wholesale price of a popular liquor drops from 3000 yuan to 1700 yuan, holding inventory leads to a reduction in book value, making it more detrimental than not having any inventory at all.
3. Complex Expense Reimbursement Processes: Manufacturers offer subsidies (such as for promotional events and tasting sessions), but dealers must pay in advance before submitting the necessary paperwork for reimbursement. The process is cumbersome, and there are high risks of the payments being denied (e.g., if the documentation does not meet requirements or managers change positions). Therefore, dealers prefer to make smaller payments and wait until expenses are reimbursed before making further purchases.
Manufacturers Are Caught in a Dilemma
Facing dealers' partial non-compliance (not completely stopping sales but failing to meet targets), manufacturers are at a loss:
- Unable to Revoke Agreements: Dealers are only paying less, not violating any rules, so there is no reason for manufacturers to cancel their agreements.
- Difficulty in Finding New Dealers: No one wants to take on the burden of high inventory during a downturn in the industry. As a result, manufacturers can only accept the current situation and watch their sales volumes decline.
The Industry Is Changing: Manufacturers Losing Control, and a Tripartite Battle for Dominance Has Just Begun
These changes are having a chain reaction:
- Manufacturers Struggling with Growth: The strategy of driving growth through inventory pressure no longer works, leaving listed companies without clear indicators for performance improvement.
- Weakening Manufacturer Control: With large distributors selling off excess inventory and smaller dealers acquiring goods from the market, prices are becoming more transparent, making it harder for manufacturers to maintain control over the distribution channels.
- Shift in Power: Manufacturers used to have complete authority; now, sales volume and customer preferences (along with price dynamics) determine market trends. This shift will take time to settle.
In summary, the liquor industry is transitioning from a model based on manufacturers forcing inventory purchases to one where production is determined by demand. For consumers, this may mean cheaper options; for manufacturers and large distributors, it presents challenges. However, this transition is essential for the industry to return to a healthier state.