During the New Year holidays, wine culture is an essential part of the Chinese table. Now that the new year is approaching, major wine companies have also begun their final layout, and news of price increases and new products is constantly pouring in.
On the evening of December 28, a “Notice on Adjusting the 60-Year Price System for Centennial Luzhou Laojiao Cellar Wine” from Luzhou Laojiao Cellar Sales Co., Ltd. came out. The dealer confirmed that the news of the price increase was true.
The price increase at the end of the year should be a good thing for liquor in peak season, but the shareholders of Luzhou Laojiao quarreled. Some people think, “Tomorrow is the last wave of new year's Eve.” However, others said, “The last time the price increase was over, it fell; tomorrow will definitely drop as well.”
As a result, the liquor sector fell across the board. On December 29, the liquor sector plummeted by more than 8% when the market was closed at noon. Gujing Gongjiu, Jinhui Liquor, and Alcoholic Liquor had fallen by more than 5%. Luzhou Laojiao quoted 244.80 yuan/share, a drop of 6.13%. Wuliangye and Kweichow Moutai also plummeted by more than 4%.
This is not the first time that the price of the company's products has risen, but the stock price has plummeted.
Since December, Luzhou Laojiao has issued price adjustment notices several times. On December 14, Luzhou Laojiao Specialty Liquor Sales Co., Ltd. issued a notice on the proposed price adjustment for the 2018 edition of 52-degree Luzhou Laojiao Specialty Liquor (Time-honored Brand); on December 16, news of the price increase also came from Luzhou Laojiao. As a result, the company's stock price plummeted 3.63% the next day.
Liquor ushered in a wave of price increases at the end of the year
Tianfeng Securities once pointed out that the core logic of the high-end sector is to raise prices. High-end wine companies have always had the ability to raise prices. Steady price increase, control, and price stability according to the company's own pace of development is the only way to develop for a long time.
It seems to be to confirm their ability to raise prices. Recently, all major wine companies have begun a price increase model.
Since the end of November, wine companies' price increases can be described as wave after wave. Earlier, there was news that Wuliangye is about to raise prices. The price of the new contract signed by Wuliangye dealers next year will change. The unplanned price of 52-degree eighth-generation Wuliangye will increase from 999 yuan/bottle to 1,089 yuan/bottle.
On December 12, Xi Liquor Company stated that it would raise the prices of all products; on December 13, Shede Liquor issued a price adjustment notice to adjust the price system for the collection Shede series products from January 1, 2022; on December 21, Bozhou Gujing Sales Co., Ltd. issued a notice to adjust the group purchase price of Gujing Gongjiu Vintage Puree and Year 30 products; on December 23, rice wine giant Guyue Longshan also mixed in and decided to adjust the prices of some products, with a maximum increase of 20%; on December 24, Shunxin Agriculture released a price adjustment for liquor products According to the announcement, the price increase for the Niulanshan Liquor Series ranges from 20 yuan to 50 yuan/bottle.
However, product prices continued to rise, yet the company's stock price reversed polarity.
The liquor sector's performance in the second half of this year was lackluster. The liquor index has shown a slight decline since the beginning of June. Judging from the excessive decline in liquor stocks, the stock prices of many individual stocks such as Jinseed Liquor, Shuijingfang, Jinhui Liquor, Qingqing Liquor, Wuliangye, Yanghe Shares, and Shunxin Agriculture all fell by more than 20% from their high during the year. Although looking at the whole year, the liquor sector had an average increase of 20%, outperforming the market, its performance was far below that of 2020.
Maotai will host a new product launch
The year-end sprint is not only about increasing prices; launching new products is also a common strategy.
According to reports, Maotai will release a new Maotai wine product towards the end of 2021. The launch conference for the newly upgraded 53% vol 500ml Kweichow Moutai (Precious) will be held on the evening of December 29 at the “Source of Maotai Distillery Industrial Heritage” complex under the brand slogan “The Source of Maojiu”.
Some industry insiders analyzed that with the introduction of the new version of the precious Maotai liquor, the main force under Maotai, which has developed with high quality, has gradually taken shape. “Treasure” may become a competitive main product in the high-end product line.
However, currently the market's recognition of Maotai is mainly due to Feitian Liquor. The launch of the new product also doesn't seem to have boosted the stock price. As of the midday break, Kweichow Moutai's stock price also fell by more than 4%.
There are still many opinions in the market about whether Maotai will raise prices this year. After much discussion, the conclusion is “depends on the market situation.” However, if Maotai insists on not raising prices, brands that have already raised prices this year may not have a very comfortable life.
Maotai's price increase may affect the market
This year, especially since the second half of this year, the liquor capital market has remained tepid. First, because a lot of capital has switched to new energy, dual carbon, etc.; second, after a sharp rise, the liquor sector has been undergoing valuation repairs and returns. In particular, Maotai's price increase has never been implemented, which also had a certain impact on the performance of the liquor capital market.
Liquor's high Māori is well known, and its premium capacity is largely determined by brand awareness. This actually means that wine companies are able to withstand rising costs. Therefore, in this wave of price increases for liquor, the popularity of alcohol brands is the foundation of the company's premium rights and market competitiveness.
With Maotai's brand influence, if they insist on not raising prices, then the rest of the liquor price increases may be “self-destructing trucks.”
Because liquor has strong social attributes, if Maotai's price is relatively cheap, consumers probably won't consider second- and third-tier liquor. Analysts said that Maotai's current price increase should not be entirely subject to other considerations. In terms of its market position and profit margins, this not only has enough room to absorb cost pressure, but can also put more pressure on competitors — because once rivals can't support the price increase, customers are likely to go to Maotai.
What is the next step for the liquor sector?
As can be seen, when leaders in the industry are not moving, an increase in the price of liquor is not necessarily an inevitable benefit, let alone think that companies can achieve a significant increase in performance by simply relying on price increases. Factors such as brand influence and market recognition all need to be considered.
Furthermore, the current overall valuation of the liquor sector is no longer low. According to the data, the current dynamic price-earnings ratio of the liquor sector has reached about 48 times, and Maotai's dynamic price-earnings ratio is only about 52 times. It is hard to say that the current value of the liquor sector is excessively undervalued.
Regarding the subsequent trend, Tianfeng Securities pointed out that high-end liquor leaders have strong barriers and superior business models, and the 2022 performance is expected to remain stable. Currently, valuations are in a reasonable position, and in the short term, they may enjoy the market conditions brought about by the valuation switch; in the medium term, the consumer sector may prefer high-end liquor; in the long run, high-end liquor still has the ability to raise prices. It is only suppressed by external factors in the short term. The core logic has not changed, and it is still a high-quality core asset that is promising for a long time.