The situation of Jiugui Liquor is becoming increasingly severe.

Previously, Jiugui Liquor disclosed its Q3 2024 financial report, showing that the company achieved revenue of 1.191 billion yuan in the first three quarters, a year-on-year decrease of 44.41%; net profit was 56.49 million yuan, a year-on-year decrease of 88.2%.

Although both revenue and net profit declined in the first three quarters, this is not the worst scenario, as Jiugui Liquor's performance deteriorated even faster in Q3, with net profit turning into a loss. In Q3, Jiugui Liquor's revenue was 196.9 million yuan, a sharp year-on-year decline of 67.24%; net profit showed a loss of 64.53 million yuan, a year-on-year plunge of 213.67%.

It is reported that in the first three quarters of last year, Jiugui Liquor's net profit still totaled 478.7 million yuan, with Q3 net profit at 56.77 million yuan. The comparison clearly shows that Jiugui Liquor's current operational condition is deteriorating rapidly.

So, why did Jiugui Liquor's Q3 performance decline so sharply?

Jiugui Liquor stated that the company is in a critical stage of marketing model transformation, compounded by the weak cycle of the liquor industry. Dealers are adopting a conservative approach under the current economic environment, being cautious with payments, and the new model's support for sales performance still requires time.

According to data from the China Alcoholic Drinks Association, in 2023, China's large-scale liquor companies achieved sales revenue of 756.3 billion yuan, a year-on-year increase of 9.7%; total profits reached 232.8 billion yuan, up 7.5% year-on-year. While the growth rate of sales revenue and profits in the liquor industry is indeed slowing, Jiugui Liquor's performance is far worse than the industry average, which is an indisputable fact.

Still "Paying the Price"

Previously, Kanjian Finance repeatedly tracked Jiugui Liquor, pointing out that aggressive expansion was the main reason for its performance decline in recent years.

To achieve nationwide sales, Jiugui Liquor aggressively recruited dealers. From 2020 to 2022, the number of new dealers added was 235, 493, and 330, respectively, totaling 1,246 new dealers in four years. By 2023, Jiugui Liquor had 1,774 dealers. However, due to a lack of management capability and rising inventory pressure, "cross-region sales" became rampant, leading to severe price inversion.

Now, Jiugui Liquor is "paying the price" for its past aggressive expansion.

Taking dealers as an example, media reports indicate that Jiugui Liquor has cut many dealers this year, reducing the number to 1,301 in the first half of the year. Specifically, the number of dealers in North China, East China, South China, Central China, and other regions decreased by 75, 76, 28, 210, and 84, respectively, compared to the end of 2023. The average dealer scale fell by 12.22% year-on-year to 760,800 yuan per dealer.

Additionally, in terms of business strategy, Jiugui Liquor has shifted from "advancing nationwide" to retreating to its home base in Hunan. In its 2023 annual report, Jiugui Liquor no longer mentioned "nationalization" but instead adopted a strategy of "deep cultivation in Hunan as the home base and building confidence in key markets outside Hunan." The company also established a "Hunan Division" specifically responsible for sales in Hunan. In terms of revenue, Jiugui Liquor explicitly split its H1 revenue into domestic (Hunan) and external markets. Domestic revenue was 580.8 million yuan, accounting for 58.42% of total revenue, while external revenue was 413.3 million yuan, making up 41.58%.

It must be admitted that Jiugui Liquor has become more "down-to-earth," but filling the hole dug by past aggressive expansion is not easy, and "paying the price" will take a long time.

After all, price inversion for Jiugui Liquor's products remains severe. For example, the high-end product "Neican Liquor" has a dealer channel price of around 800 yuan per bottle, while online e-commerce platforms sell it for 750-900 yuan per bottle. However, the official suggested retail price is 1,499 yuan per bottle, with a factory price of 1,050 yuan per bottle. The market price once peaked at 1,199 yuan, but now the channel price has halved compared to the official suggested retail price.

Pressure Remains Significant

For Jiugui Liquor, the pressure on performance is just the beginning; the real challenges lie ahead.

On one hand, due to the significant reduction in dealers, Jiugui Liquor faces immense pressure on both production and sales, especially on the production side.

In 2023, Jiugui Liquor sold 9,882 tons of liquor. By the end of 2023, the company had 5,671 tons of finished product inventory and 40,526 tons of base liquor inventory. At the current sales rate, it would take at least 5-6 years to digest this high inventory. Meanwhile, Jiugui Liquor's current production capacity is around 12,000 tons, with an additional 3,000 tons of base liquor capacity added in 2024. In the coming years, the total planned capacity will reach 22,800 tons.

If the company cannot quickly adjust, this massive capacity will become a significant burden, as idle capacity still incurs depreciation costs, negatively impacting Jiugui Liquor's performance.

In terms of inventory data, Jiugui Liquor's inventory pressure is also increasing. As of Q3 this year, its inventory was 1.67 billion yuan, up 219 million yuan year-on-year from 1.451 billion yuan in the same period last year, a 15.1% increase.

On the other hand, net profit losses have affected Jiugui Liquor's cash flow. As of Q3 this year, its cash reserves were only 1.341 billion yuan, a sharp decline of 606 million yuan from 1.947 billion yuan in H1. Additionally, in Q3, the net cash flow from operating activities was -411.4 million yuan, and the net increase in cash and cash equivalents was -1.02 billion yuan, indicating an outflow of funds.

For Jiugui Liquor, if operational conditions do not improve effectively, continued cash outflows may worsen its financial situation. Of course, Jiugui Liquor is aware of the urgency. Despite the significant performance decline, the company has not drastically reduced sales expenses. In the first three quarters of this year, sales expenses were 475.5 million yuan, down 25.64% year-on-year, but the decline was noticeably smaller than the performance drop.

According to media analysis, Jiugui Liquor is accelerating BC linkage and strengthening consumer cultivation, shifting from channel-driven sales to sales-driven business growth, which explains why sales expenses have not decreased significantly.

Undeniably, as competition in the liquor industry intensifies, relying on channel-driven growth will become increasingly difficult. Thus, transitioning to sales-driven growth is the right direction. However, successfully changing the model will take a long time.