Key Performance Highlights for the First Half of 2026: A Setback for Luzhou Laojiao
Luzhou Laojiao experienced a significant decline in performance in the first half of 2026, with both revenue and net profit plummeting. The second quarter was particularly disastrous, showing a 65% drop in revenue and a 79% decrease in net profit. This setback can be attributed to the company's strategy of maintaining a high price for its premium product, Guojiao 1573, by restricting shipments and not reducing prices. This approach stands in sharp contrast to the strategies of Wuliangye, which focuses on reducing prices to maintain sales volume, and Moutai, which has lowered the prices of its non-standard products. While the company has managed to maintain its gross profit margin, the resulting sharp decline in sales volume and increased pressure on its distribution channels have raised concerns about whether history is repeating itself (a similar price maintenance strategy led to substantial losses in 2013). As a result, the goal of returning to the top three in the industry has become more difficult to achieve.
I. Performance Collapse: Second Quarter Earnings Were Only One-Fifth of Last Year's
Luzhou Laojiao's performance in the first half of the year left the market in shock:
- Total revenue was 10.47 billion yuan, nearly 40% lower than last year.
- Net profit was 4.34 billion yuan, a decrease of 43%.
- The second quarter was even worse: revenue was only 2.45 billion yuan (compared to 7.1 billion yuan in the same period last year, a 65% drop), and net profit was 630 million yuan (down from 3.06 billion yuan last year, or one-fifth of the previous year's amount).
- The production of mid-to-high-end products, which account for 87% of total revenue (mainly Guojiao 1573), was cut by 77%, sales volume decreased by 42%, and inventory increased by 8%. In other words, the company deliberately produced and shipped fewer units, resulting in fewer sales and more products accumulating in storage.
In simple terms, the company's decision to avoid price cuts led to reduced consumer demand and consequently, a collapse in performance.
II. Price Maintenance vs. Price Cuts: Why Doesn't Luzhou Laojiao Follow Moutai and Wuliangye?
The liquor industry is currently facing tough times, with high inventory, poor sales, and declining prices. While other companies are making adjustments, Luzhou Laojiao has chosen the most stubborn path:
- Wuliangye: Reduced prices indirectly at the end of 2025 (by providing subsidies to distributors), which led to a double-digit increase in sales of the eighth-generation Wuliangye.
- Moutai: Lowered the purchase price for its Moutai 1935 product (from 798 yuan to 668 yuan), with a distribution completion rate of over 80% this year, indicating successful sales.
- Luzhou Laojiao: Chairman Liu Miao has clearly stated that the company will not lower prices and will prioritize maintaining price stability, even if it means sacrificing short-term sales volume.
Why this choice? The company fears that price cuts could undermine the premium image of Guojiao 1573. If the price of a thousand-yuan product like Guojiao 1573 is reduced, consumers may feel it is no longer worth the price, and distributors will lose their profit margin, leading to a vicious cycle where prices continue to fall and sales decline even more.
III. Will History Repeat Itself?
This is not the first time Luzhou Laojiao has tried to maintain high prices. In 2013, during a sluggish industry period, Guojiao 1573's price was increased by 14%, but this resulted in a double-digit decline in both revenue and net profit, with premium product sales dropping by 34%. In 2014, the company was forced to lower prices, leading to a 48% decrease in revenue and a 74% drop in net profit. The company's financial reports acknowledged that excessive price maintenance had caused a loss of sales volume, damaged distributor confidence, and weakened channel relationships.
Investors are concerned about another similar outcome. Management argues that times have changed; in the past, price cuts were effective due to reliance on distribution channels, but now, as the company is in a long-term transformation, old strategies no longer apply. However, the market remains skeptical, with poor sales at the retail level (for example, a Beijing store sold only two bottles of Guojiao 1573 in two days during the May Day holiday) and a 27% decrease in distributors' willingness to make payments, with 162 distributors leaving the company.
IV. The Cost of Price Maintenance: Short-Term Pain, but Long-Term Benefits?
The benefits of maintaining high prices include preserving the gross profit margin (90.7% for mid-to-high-end products, similar to last year), and making Guojiao 1573 the most successful product in its price range. However, the costs are also significant:
- Short-Term Performance Decline: Restricted shipments have led to a sharp drop in revenue and profits.
- Increased Channel Pressure: Distributors are reluctant to purchase, and some have left the company, while inventory continues to rise. If sales do not improve, the channels will eventually be overwhelmed.
- Unremitting Demand Contractions: Expert Xiao Zhuqing points out that while price maintenance can protect the brand, it cannot counter broader economic trends such as an aging population and declining purchasing power. If there is no demand at the retail level, increasing inventory will only pose greater risks.
In summary, maintaining high prices is a strategy aimed at long-term success, but short-term challenges, such as declining sales volume and pressure on channels, must be addressed. Otherwise, the brand will be at risk.
V. The Challenge of Reaching the Top Three: Fenjiu Has Passed Them By
Luzhou Laojiao's chairman, Liu Miao, has always aimed to return to the top three in the industry (currently ranked fourth, behind Moutai, Wuliangye, and Fenjiu). When he took office in 2015, the company's revenue was only 6.9 billion yuan, and it later grew to 30 billion yuan thanks to the success of Guojiao 1573, nearly catching up with Yanghe. However, Fenjiu has since surpassed it in terms of net profit.
Reaching the top three is now more difficult:
- Poor Industry Conditions: Shrinking demand and fierce competition for customers.
- Internal Weaknesses: Guojiao 1573 performs well in Sichuan and Chongqing, but its market penetration outside these regions is low. The company's reliance on premium products is excessive, and its mid-range and aged products have not performed well. New initiatives in low-alcohol and aged liquor categories have not been successful.
Experts suggest that relying solely on price maintenance is not enough; a balance between price and volume is needed. The company should focus on consumer promotions, expand its market outside Sichuan and Chongqing, and strengthen its mid-range products to offset the decline in premium sales. However, the goal of reaching the top three may be further out of reach in the short term.
In conclusion, Luzhou Laojiao is currently trying to protect its brand at all costs. Whether it can achieve long-term success depends on whether consumers are willing to buy its products. After all, liquor is meant to be consumed, not just stored in warehouses.