China’s largest wine producer, Yantai Changyu Pioneer Wine Company Limited has reported a net loss of RMB 2.88 million (US$ 403,864) in its Q3 result, marking the first loss since going public in 2000.
The historic loss for Changyu reflects the challenging environment of wine consumption in China as consumers tighten up purse strings in uncertain economic times
According to the Q3 report, Changyu’s operating income for the period declined by 19.11% year-on-year, totalling RMB 675 million (US$ 94.79 million). Additionally, net profit attributable to shareholders of the listed company plummeted by a staggering 95.44% year-on-year, falling to RMB 2.78 million (US$ 390,384).
Notably, the net loss was RMB 2.88 million for this quarter, excluding non-recurring gains and losses. By stripping out items such as investment income and government subsidies, this figure offers a clearer picture of the company’s true profit-generating capability, which is concerning in Changyu’s case. According to DaHe Fortune Cube (大河财立方), a state media-affiliated finance news platform, this loss marks the first for Changyu since its listing in 2000.
Rather than being a seasonal fluctuation—autumn is traditionally a peak season for wine sales—the loss in Q3 2024 reflects a continuing decrease in revenue since the beginning of the year. During the first three quarters, Changyu’s revenue totalled RMB 2.197 (US$ 308.52 million) billion, representing a 21.56% year-on-year decrease, while its net profit plunged 47.25% to RMB 224 million (US$ 31.46 million) over the same period.
A representative from Changyu explained that this year’s overall market environment is the primary factor behind the decline in Q3 performance. Earlier, in May, during an investor exchange meeting, Sun Jian, Changyu’s General Manager, described the market environment as “unfriendly,” citing no signs of near term recovery.
“The market environment of this year remains unfriendly. Based on data, daily operation, and various data analyses obtained online, we don’t see any clear signs of recovery.” Sun said at the time.
Changyu is not the only listed wine company facing poor performance during the first three quarters of 2024. Tonghua Grape Wine Co., Ltd. reported a net loss of RMB 31.61 million (US$ 4.44 million) for this period. CITIC Niya Wine Co., Ltd. saw a dramatic decline of 94.69% in net profit, falling to RMB 407,145 (US$ 57,173.66), while its revenue dropped by 36.92% to RMB 101.76 million (US$ 14.29 million).
Soft market demand is also reflected in customs data, which shows declines in imports from major wine-producing countries from January to September this year. Although there was an overall increase in wine imports during this period due to the resumption of Australian wine imports in March, both the value and volume of imports from France, Chile, Italy, and Spain experienced significant year-on-year decreases. France, China’s largest source of wine imports, saw a 9.8% drop in import value to US$ 389.22 million and a 15.9% decline in volume to 38.40 million liters.
China’s financial woes may also be related to high inventory levels carried over from 2023, straining distributors. According to Changyu’s 2023 annual report, the company also experienced a drop in revenue and net profit during the first three quarters of this year, albeit in single digits.
However, in the fourth quarter of 2023, Changyu saw a substantial revenue increase of 42.93% and an extraordinary surge in net profit of 2003.86%. The selling expenses for the year totaled RMB 1.24 billion (US$ 174.64 million), reflecting a significant increase of 20.49% compared to the previous year, with the fourth quarter accounting for RMB 554 million (US$ 78.03 million). This suggests a clear strategy to stock up in the fourth quarter.
While Changyu is the wine company with the strongest distribution channel control ability in China, it is not as dominant as Baijiu. Additionally, with the return of Australian wines this year and their efforts to capture the existing market share, the competition faced by Changyu has intensified.
Despite a clear indication of slowing in the market, Changyu’s decline also reflects the evolution of wine consumption in China, where consumers are developing their preferences rather than simply following trends set by major brands.
Previously, customers chose Changyu based on their trust in its brand reputation as a large firm. “However, as the consumption market matures and the economic environment worsens, consumers have become more discerning and compare options more carefully,” noted an industry expert familiar with China’s wine market. “Compared to imported wines, Changyu’s offerings are not competitive in terms of value for money, which has led to poor sales.”
Following the market opening on October 28, Changyu’s stock price declined from RMB 24.20 (US$ 3.40) per share at the close on October 25 to RMB 23.59 (US$ 3.31) by 9:32 AM on October 28, before experiencing a brief increase. However, on October 29, Changyu’s stock price dropped again to RMB 23.35 (US$ 3.28) at the close.
As the leading company in the Chinese wine production industry, Changyu operates domestic wineries in Shandong, Ningxia, Xinjiang, and Shaanxi, as well as internationally in France, Spain, Australia, and Chile, where it owns Chateau Mirefleurs, Marques del Atrio, Kilikanoon, and Indomita, respectively. Additionally, Changyu boasts well-developed distribution channels, making its products available nationwide through various outlets, including county-level markets.
In its 2023 annual report, Changyu stated its aim to achieve an operating income of no less than RMB 4.7 billion (US$ 660 million) in 2024. However, it appears that the company has achieved less than 50% of this annual target in the first three quarters.
Will Changyu replicate its strategy from last year to boost sales, and how will the market respond? As an industry leader, Changyu’s performance serves as an important indicator for China’s wine market,warranting close attention. Vino Joy News will continue to monitor these developments closely.
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