A 50-year-old Napa winery owned by Qinghai Huzhu Barley Wine Co., Ltd., a publicly traded Chinese company, has been suffering seven straight years of losses, totalling more than RMB 100 million (US$13.8 million), according to the latest financial report released by the parent company.
Qinghai Huzhu Barley Wine Co., Ltd, also known as Tian You De Wine is based in Qinghai Province in Northwestern China and specializes in the research, development, production, and sales of barley wine.
Despite the ongoing losses at the Napa operation, the 2023 financial report shows the parent company continues its trend of robust growth over the past three years. Total operating revenue reached 1.21 RMB billion (approximately IS$170 million), a 23.50% increase year-over-year. Net profit attributable to the parent company climbed to RMB 89.58 million (approximately US$12.6 million), an 18.36% increase from the previous year, marking the best performance in nearly five years.
However, the company’s foray into the grape wine business, which began ten years ago, has yet to show positive results. According to the financial report, its American operations responsible for wine production, sales and its parent company’s barley wine exports have accumulated losses of RMB 100 million (US$13.8 million) over seven years, significantly impacting the listed company’s bottom line.
In 2023, Tian You De Wine’s revenue from wine totaled RMB 12,489,989.02, a 33.53% decrease from the previous year, representing just 1.15% of the company’s total revenue compared to 2.21% in 2022.
Additionally, the company’s wine production and sales business reported a net loss of RMB -16,521,719.42, and its American company reported a net loss of RMB -14.64 million for 2023.
Since 2017, when the company started reporting the financials of its American subsidiary, the subsidiary has continued to report annual losses, totaling a loss of RMB 101 million to date.
Buying Frenzy
In 2013, Tian You De Wine acquired Maxville Winery in California’s Napa Valley, which spans approximately 400 hectares. Located in Chiles valley, the first vines were planted in 1974 by then owner, the Keith family.
The Chinese liquor company’s investment into Napa follows a popular trend among Chinese companies betting big on Chinese market’s growing demand for wine. Many Chinese companies have acquired overseas wineries with the hope to sell wines back to China.
However, Tian You De Wine’s distribution channels seem to be mismatched with Maxville Winery. According to the annual report, the company’s core market is in Qinghai Province, where it achieved provincial sales of RMB 806 million and RMB 374 million outside the province in 2023, with provincial sales accounting for 68.3% of total revenue. Qinghai, bordering Tibet in southwestern China is not however a mature wine-consuming region.
Maxville Winery has a flagship store on Youzan, a Chinese social e-commerce platform. Vino Joy observed that its wine prices are relatively high, with the least expensive Napa Valley red wine priced at RMB 629 (US$86.8) per bottle, and other bottles selling from 699 (US$96.5) up to RMB 1999 (US$275.8) respectively. Similarly, selected red wines from the larger Californian region generally start at prices above RMB 300.
The annual report from Tian You De Wine suggests that the losses in the wine segment are primarily due to the brand’s limited market reach and the impact on brand strength.
Moreover, the high operational costs associated with Napa Valley wineries are well-known. With sales struggling to scale and high costs, these factors undoubtedly contribute to the financial losses of Maxville Winery and Tian You De Wine’s wine operations.
