Net profit in the third quarter fell by 84.76% Hua Zhi Liquor Company increased its efforts to promote the national layout of chain stores and retail outlets

Our reporter Wang Jinchen

Recently, Huazhi Liquor Chain Management Co.
, Ltd.
(hereinafter referred to as "Huazhi Liquor Company") released its third quarterly report, showing that the company achieved revenue of 7.
480 billion yuan in the first three quarters, a year-on-year increase of 25.
26%; The net profit was 354 million yuan, a year-on-year decrease of 39.
14%.

Among them, in the third quarter of 2022, the company achieved revenue of 2.
105 billion yuan, a year-on-year increase of about 4.
32%; The net profit was 32.
6969 million yuan, a year-on-year decrease of 84.
76%.

As a large-scale distributor of liquor circulation, Hua Zhi Liquor Co.
, Ltd.
has the right to
sell a number of famous wines.
In 2021, 98.
74% of the revenue of Huazhi Liquor Company was contributed by the alcohol business, and the net profit was 676 million yuan that year, a year-on-year increase of 81.
03%.

According to the data of the three quarterly reports released by a number of listed wine companies recently, many mid-to-high-end wine companies still maintain a good growth rate, in this context, what is the reason for the change in the performance of Huazhi Liquor in the same period?

The performance is linked to the prosperity of the liquor industry

As a wine distributor, Huazhi Liquor Co.
, Ltd.
has more than 2,000 chain stores of Hua Zhi Liquor Store and Hua Zhi Famous Liquor Store, and has established an omni-channel marketing network covering 31 provinces, municipalities and autonomous regions across the country, selling more than 4,000 high-end wines
.
Upstream partners include a number of famous wine companies
.

In recent years, the consumption upgrading trend of the liquor industry has been obvious, and Huazhi Liquor Co.
, Ltd.
has taken advantage of this dividend to achieve rapid growth
in performance.

According to the data, Huazhi Liquor Company won the distribution rights of a number of high-end liquors in the early stage of its establishment, and entered the mid-to-high-end market
in the form of high-end group purchase.
At present, Huazhi Liquor has carried out a comprehensive layout in retail, KA stores, e-commerce and other sales channels, and successfully landed on the Shenzhen Stock Exchange
in January 2019.

In terms of performance, data from the past three years show that from 2019 to 2021, Huazhi Liquor achieved operating income of 3.
738 billion yuan, 4.
941 billion yuan and 7.
460 billion yuan respectively, and the revenue growth rate increased from 32.
20% to 50.
97%: the net profit attributable to the shareholders of listed companies was 319 million yuan, 373 million yuan and 676 million yuan, and the profit growth rate increased from 16.
82% to 81.
03%.

However, the soaring performance of Huazhi Liquor Company has come to an
end in 2022.
In the first half of this year, the company achieved operating income of 5.
375 billion yuan, a year-on-year increase of 35.
94%; The net profit was 323 million yuan, a year-on-year decrease of 12.
76%, and the net profit attributable to shareholders of listed companies was 321 million yuan, a year-on-year decrease of 12.
44%.

In this regard, when Hua Zhi Liquor Company was surveyed by institutions, it mainly attributed the shrinkage in the first half of the year to the epidemic
.
"Affected by the epidemic lockdown, logistics have been seriously blocked, and the catering industry and social activities have been greatly affected
.
The company adjusted the product structure, the proportion of famous wine sales increased year-on-year, and at the same time increased the promotion of fine wine, resulting in a decline
in the gross profit margin of fine wine.
At the same time, Hua Zhi Liquor Company also expanded its sales force and launched the "700 Project", that is, recruiting and training
more than 700 sales personnel.

However, from the latest disclosed data of the three quarterly reports, the performance of Huazhi Liquor is even less satisfactory
.

According to the report, the company achieved operating income of 7.
480 billion yuan from January to September, a year-on-year increase of 25.
26%; The net profit attributable to shareholders of listed companies was 354 million yuan, a year-on-year decrease of 39.
14%.

From the third quarter alone, the company achieved revenue of 2.
105 billion yuan, a year-on-year increase of about 4.
32%; The net profit was 32.
6969 million yuan, a year-on-year decrease of 84.
76%.

Huazhi Liquor said that in addition to the epidemic factor, the company's promotion of boutique wines has increased, resulting in a year-on-year decline in the gross profit margin of fine wines, and the gross profit margin of some famous wines has also declined
.

In the peak sales season, it is common for distributors to discount and promote low-grade wines in order to get rid of them as soon as possible, and most of the wines sold by Huazhi Liquor are famous wines and boutique wines, so why do they need to increase their promotional efforts?

Behind it may be related
to the overall market situation of the liquor market "peak season is not strong".
During the Mid-Autumn Festival and National Day this year, the sales of liquor are still relatively flat overall, and they are somewhat different from the popularity before the "Double Festival" in the past, and there has been no price increase in liquor before this
year's festival.

According to the "2022 Wine Merchant Status and Development Report" released by China Wine Fair, from January to June this year, 80% of liquor distributors had serious inventory; Among them, about 39.
7% of wine merchants have inventory for more than 5 months, and 33.
6% have inventory for 3 to 5 months
.
Some dealers frankly said that now there is great pressure on inventory and financial
pressure.

Huazhi Liquor Company's accounts receivable are also at a high level
.
According to the third quarterly report, as of the end of September 2022, the accounts receivable of Huazhi Liquor Company were 340 million yuan, an increase of 148.
12%
compared with 137 million yuan in the same period last year.
The company's financial report explained that this is mainly due
to the increase in the amount of unsettled accounts receivable at the end of the period in some large KA stores.

Under the trend of direct operation of wine enterprises, the competitiveness has been impacted

"Leveraging the brand power of upstream liquor enterprises, Huazhi Liquor has established a high-end, high-quality and genuine brand association, and high-end liquor enterprises have provided brand endorsement and trust endorsement
for Huazhi Liquor Company.
" The official website of Huazhi Liquor Company once said
.

With the fidelity chain brand effect of "buying real wine to Huazhi" and "buying famous wine to Huazhi", Huazhijiu has developed a set of its own business model
.
However, in recent years, leading liquor companies have increased their direct sales efforts and opened their own e-commerce channels, which has made traditional distributors face considerable challenges and pressures
.

Taking Kweichow Moutai as an example, the latest disclosed data from the third quarterly report of 2022 recently shows that from January to September this year, the direct sales performance of Moutai and series wines was 31.
882 billion yuan, the wholesale performance was 55.
059 billion yuan, and the proportion of direct sales in revenue increased to 36.
67%.

Among them, "i Moutai" achieved 8.
462 billion yuan
in alcohol revenue excluding tax.

"iMoutai", as the official digital marketing APP launched by Moutai, was launched in May this year, and now the proportion of direct sales has exceeded 40%, which can be described as unlimited
room for growth.

Kweichow Moutai is one of the main upstream customers of
Huazhi Liquor Company.
According to the prospectus, Huazhi Liquor Company mainly acts as an agent for Moutai and Wuliangye products, and large items such as Feitian Moutai and ordinary Wuliangye are used as drainage products of Huazhi Liquor Company, and the revenue of Moutai and Wuliangye products accounted for 86.
22%
in the first half of 2018.
However, in recent years, Huazhi Liquor has not released relevant data in its financial reports, and the latest proportion of Moutai's revenue is unknown
.

But in recent years, Moutai has cut dealerships
.
Data show that from 2018 to 2020, the number of domestic dealers in Moutai decreased from 2987 to 2046, a reduction of nearly a thousand
.

Some industry insiders have analyzed that because the direct sales model has greater profit margins, there is a high probability that the head wine companies will increase the direct sales of their popular items in the future
.
With the continuous advancement of the reform of the marketing system of famous wines, wine merchants with a high degree of dependence on them may be greatly affected
.

Or aware of the risks, Hua Zhi Liquor has continued to promote the national layout of chain stores and retail outlets in recent years to strengthen the company's control over the sales terminal and connect more consumers
.

Data show that in 2019, the number of Huazhi Liquor stores increased by 28% year-on-year; In the first half of 2020, the number of stores increased by 47% year-on-year; By the end of 2021, there were more than 30,000 customers in retail outlets, and a total of 273 new chain stores
had been added.

The 2022 half-year report of Huazhi Liquor Company disclosed that the company is steadily promoting the national layout of chain stores and retail outlets, screening out 700 areas with medium and high-end alcohol consumption capacity including provincial capitals, cities around provincial capitals, prefecture-level cities and top 100 counties nationwide, developing retail outlets and cultivating chain store customers, and further expanding the radiation scope of
the company's marketing network system.

Does expanding the scope of stores and increasing the scale of stores effectively increase the proportion of Huazhi Liquor Company in the market of wine circulation enterprises? If the dependence of famous wine companies on the company decreases, how will the subsequent operation and development of Huazhi Liquor Company be affected? The reporter sent an interview letter to Huazhi Liquor Company on related issues, but as of press time, no reply
has been received.

Responsible Editor: Zhang Jiazhen Review: Ouyang Meihua