Summary of Key Points
The adjustment in the liquor industry is spreading from the downstream channels where liquor is sold to the upstream production stages. The base liquor, once considered a “gold mine,” is now flooding the auction markets with many unsold lots, with prices plummeting to levels as low as those of cola or even lower. Small and medium-sized liquor companies are exiting the market in large numbers due to a lack of brand recognition, funding, and confidence. The entire industry is facing a triple crisis of reduced sales volume, lower prices, and diminished profits. Although some analysts claim that the most difficult period has passed, the actual adjustment has not yet reached its bottom and may not happen until the first half of 2027. It will be difficult for the industry to return to the prosperous days of widespread expansion.
Base Liquor Sold at “Cola Prices” – Some Cheaper than Mineral Water
Base liquor used to be a valuable asset for liquor companies, with its value increasing over time. However, current auction prices are ridiculously low:
- Base liquor from an Anhui brewery that went bankrupt was sold after five failed auctions at a price of 3.7 yuan per 500 grams, which is roughly the same as the price of cola in supermarkets.
- More than 5,500 tons of base liquor from a Sichuan Luzhou brewery were auctioned for an estimated value of 110 million yuan but finally sold for only 13.9 million yuan, equivalent to 1.25 yuan per 500 grams (a 10% discount).
- Base liquor from a Sichuan Dayi brewery was even cheaper, costing less than 1 yuan per 500 grams and failing multiple auctions.
- Even for the popular Maotai-style liquor, base liquor from a Guizhou brewery was sold for only 20 yuan per 500 grams, far below its production cost (which is generally between 18-25 yuan per 500 grams).
Even more distressing is that many base liquors remain unsold despite multiple price reductions. For example, 400 tons of sesame-flavored base liquor from a Shandong brewery started at 10 yuan per 500 grams but still failed to find buyers.
Why No One Wants to Buy Base Liquor?
Liquor companies are not unwilling to stockpile it; they simply cannot afford to take on the risks:
1. Overcapacity in the industry: Liquor companies already have too much inventory and cannot sell it all. Small and medium-sized breweries have stopped production to clear their inventories, while larger ones have reduced production, so there is no need to purchase additional base liquor.
2. High risk with unknown quality: Most of the base liquor available for auction comes from bankrupt companies, with no clear information about its alcohol content, age, or storage conditions. Buying such liquor could result in poor quality or even contamination.
3. High additional costs: Judicial auctions involve transfer of ownership, sampling, transportation, and testing, all of which are costly. Moreover, there is a risk of the liquor deteriorating during these processes, making it unattractive for capable companies to take on.
The “Triple Crisis” in the Liquor Industry: Reduced Volume, Lower Prices, and Decreased Profits
In simple terms, the industry is facing a decline in all three key aspects:
- Decline in sales volume and prices: In the first half of 2026, over 65% of liquor companies reported a decrease in both sales volume and revenue, with the decline in revenue being even more significant than the decrease in volume.
- Plunging profits: 86% of companies experienced a drop in profit margins, while only 5.9% saw an increase.
- Even listed companies are struggling: The revenue of 20 A-share liquor companies decreased by 0.7% year-on-year in the first quarter of 2026, and net profits fell by 1.8%. Even leading companies are affected, indicating the severe pressure the industry is under.
Small and Medium-Sized Breweries Are Failing En masse
Small and medium-sized breweries are struggling the most and are being gradually eliminated from the market:
- Sharp reduction in numbers: The number of liquor companies above a certain size decreased from 1,593 in 2017 to 892 by 2025, a reduction of nearly 700 in just five years.
- Reasons for failure: Lack of brand recognition, insufficient funding, and lack of market confidence (difficulty in selling products, leading to reduced production).
- Further elimination expected: Experts predict that the industry will not bottom out until the number of companies above a certain size further decreases and channel inventory and wholesale prices stabilize.
The Industry Adjustment is a “L-Shaped Bottom” – No Quick Recovery
Although Goldman Sachs suggests that the most difficult period has passed, the reality is more pessimistic:
- Companies are cautious: 68.5% of companies expect the industry to continue to decline in the second half of the year, while only 16.8% believe there will be a slight recovery.
- Slow bottoming out: Industry experts predict that the industry may not hit its bottom until the end of 2026 or the first half of 2027.
- No quick rebound: Unlike the “V-shaped” recovery in 2016 (a rapid decline followed by a quick rebound), this time the industry is likely to experience a prolonged period of stabilization at the bottom before improving.
In summary, the “winter” for the liquor industry has not yet ended, and the elimination of small and medium-sized companies continues. The market will become increasingly dominated by leading brands in the future.