Changyu Warns of ‘Stagnant’ Market, No Recovery in Sight as Profits Plunge 40%

Changyu Pioneer Wine Company, China’s largest wine producer, reported a nearly 40% decline in net profit for the first half of 2024, reflecting the ongoing challenges in the country’s wine market.

The company, which owns multiple domestic wineries and has investments in France, Spain, Chile, and Australia, saw its profit drop to RMB 221 million(US$30.3 million), down 39.17% from the same period last year.

Revenue for the period fell 22.6% to RMB 1.522 billion (US$208.9 million), marking Changyu’s steepest decline since 2021. The company’s flagship wine brands, including the best-selling Changyu Noble Dragon and Longyu series, struggled amid a sluggish domestic market and stiff competition from other alcoholic beverages.

Changyu attributed the downturn to broader economic challenges and a weakening consumer base for wine in China. “The domestic wine market has continued to shrink, with declining profitability for wine companies, insufficient market investment, and innovation,” the company said in its mid-year report. “The industry remains stagnant, with no clear signs of recovery.”

Wine sales, which account for 72.62% of Changyu’s revenue, dropped 19.42% to RMB 1.105 billion (US$155.4 million), while brandy sales, representing 23.39% of revenue, fell 33.36% to RMB 356 million (US$50 million).

The company’s reliance on traditional offline distribution channels has also been a significant factor in its struggles. Changyu’s products are sold primarily through a network of about 5,000 domestic and international distributors. However, the reduction in business banquets due to economic conditions has severely impacted these channels.

Changyu also reported losses at three of its four overseas wineries. Chile’s Indómita Winery, Australia’s Kilikanoon Winery, and France’s Francs Champs Participations SAS recorded losses of RMB 528,400, RMB 1.6528 million, and RMB 2.7389 million, respectively. Only Spain’s Marqués del Atrio Group posted a profit of RMB 6.5101 million.

The report noted that these overseas acquisitions are still in the development phase and face challenges in establishing themselves in the competitive imported wine market.

Adding to the company’s challenges, several shareholders reduced their holdings in the first half of the year. Notably, Shenwan Hongyuan Securities (Hong Kong) Limited reduced its stake by RMB 1.96 million, and Guotai Junan Securities (Hong Kong) Limited by RMB 3.56 million. In contrast, only three of the top 10 shareholders reduced their stakes in 2023, highlighting growing concerns about Changyu’s future prospects and the outlook for China’s wine market.