Lingering around the hundred billion market value of Gu Jing

Gu Jing Jiu has been hovering around a market value of hundreds of billions for nearly 4 years, still unable to break free from this range. However, in terms of stock performance, it has been relatively good among Baijiu companies in recent years, at least not on a downward trend all the way. Gu Jing Jiu has survived from the prosperous period of Baijiu to the current low period with high inventory and poor expectations. Will it continue to fluctuate or find a breakthrough direction? I. Leading Huizhou Liquor, Benefiting from Provincial Development Gu Jing Jiu is one of the "Eight Famous Liquors" and the current leader in Huizhou Liquor. It was awarded the title of "National Famous Liquor" at the National Liquor Evaluation Meetings in 1963, 1979, 1984, and 1989, once on par with Wuliangye. The company is located in Bozhou City, Anhui Province, the hometown of historical figures Cao Cao and Hua Tuo, and one of the top ten strong liquor production areas in the world. Anhui is a major Baijiu province, both in production and consumption. According to Ipsos' "2021 China Baijiu Consumption Insight Report," Anhui Province ranks third in alcohol consumption, with a per capita alcohol consumption of 5.6 liang. A widely circulated saying in the industry goes, "Not entering Anhui in the east, not entering Sichuan in the west," referring to Anhui. This is because both regions have a deep Baijiu culture, and local consumers have high requirements for the taste and quality of Baijiu, making it difficult for foreign brands to gain market acceptance. At the same time, local Baijiu brands are very strong, leading to intense competition, so it's best for foreign brands not to enter these markets rashly. Gu Jing Jiu has emerged as a leader in such a market in Anhui, greatly benefiting from the economic and market development in Anhui. In 2023, Gu Jing Jiu achieved operating income of 20.254 billion yuan, a year-on-year increase of 21.18%. The Central China market realized operating income of 17.107 billion yuan, a year-on-year increase of 19.17%, accounting for 84.47%. Other markets achieved operating income of 3.147 billion yuan, a year-on-year increase of 28.89%, accounting for 15.53%. The Central China market mainly refers to Anhui Province. According to online investor Q&A records, the revenue from Anhui Province accounts for over 60% of the total. ** Although the growth rate in other areas outside the province is faster, the contribution to income is too small.**The large proportion within the province can maintain a good growth rate, which is the main factor driving its growth.**Over the years, Anhui Province's economy has been strong, crossing multiple levels since 2016. The province's total retail sales of consumer goods have increased from RMB 1.27 trillion to RMB 2.15 trillion, with a five-year compound growth rate of 11.1%; per capita GDP has increased from RMB 49,100 to RMB 70,300, with a high CAGR of 9.4%; per capita disposable income has increased from RMB 22,000 to RMB 32,700. The proportion of the province's GDP in the national total continues to rise. By 2023, Anhui's GDP accounts for 3.73% of the national total, and since 2010, the growth rate of per capita disposable income in Anhui has exceeded the national average for 12 consecutive years. The rapid economic development has provided support for the local Baijiu industry in Anhui.When we are upgrading consumption, Anhui is also upgrading consumption. When we start downgrading consumption, Anhui's downgrade is slower and smaller than others. According to research by Huafu Securities, the per capita GDP level in Anhui closely follows Jiangsu, and the mainstream price range of Baijiu is also approaching Jiangsu. The mainstream price range of Baijiu has continuously increased from 100-200 yuan to 200-300 yuan. At the same time, the second-highest price range plays a major role in the overall expansion of the province's Baijiu market, with the scale increasing from around 1.28 billion yuan in 2018 to about 9 billion yuan in 2023, and the proportion within the province increasing from 5% to over 20%. However, starting in 2022, affected by the pressure of the macro environment, domestic effective demand is insufficient, the trend of consumption economy has slowed down, and some regions have experienced consumption downgrading. Baijiu consumers are becoming more rational in their purchasing behavior, while paying more attention to product value for money. But according to data from the Huajing Industry Research Institute, in 2022, the Baijiu market in Anhui still grew by +8.6% year-on-year, and the demand for Baijiu continued to be relatively strong.    The mainstream price range of Anhui Baijiu still remains between 100-300 yuan, with some impact of consumption downgrading in the 300 yuan and above range The growth rate of the second-highest price range is slowing down in 2023, but overall it is still expanding, with the 300-500 yuan price range performing well. The 600-800 yuan price range is cooling down. There is a high probability that the 600-800 yuan range has been downgraded to 300-500 yuan, and the 300-500 yuan range has been downgraded to 100-300 yuan. Although the mainstream price range is still fluctuating, the long-term trend of consumption upgrading has not been broken for the time being, at least low-priced wines below 100 yuan are still part of consumption upgrading. Benefiting from the development of Anhui Province, growth will be relatively easy if the rhythm and corresponding demand are identified. II. Creating "Vintage Original Juice" and Selling Like Crazy After acquiring Huanghelou Liquor Industry and Mingguang Liquor Industry, Gu Jing Gong now owns three major old famous liquor brands: Gu Jing Gong Jiu, Huanghelou, and Lao Mingguang. The product matrix and layout are diverse, covering basically all price ranges from hundreds to over a thousand yuan. However, the most core part is still the Vintage Original Juice series of Gu Jing Gong Jiu brand. This series currently accounts for nearly 80% of the company's total revenue, with a total revenue exceeding 15 billion, high gross profit margin, and maintaining a growth rate of over 25%. It is not only the basic plate of Gu Jing Gong Jiu at present but also the core driving force for the company's growth. It has layouts from 100 to 800 yuan, which is the main white wine price range in Anhui Province. At the same time, Gu 20 is also the main promoted product for the nationalization of Gu Jing Gong. The concept of Vintage Original Juice of Gu Jing Gong Jiu originated in December 2009 when the company applied for the trademark registration of "Vintage Original Juice". After a seven-year application process, the trademark was approved by the National Intellectual Property Office on December 28, 2016. However, after successfully obtaining the trademark, Gu Jing Gong Jiu faced numerous complaints from many peers, including Wuliangye, Jiannanchun, Yanghe Shares, and other well-known liquor companies, regarding the "Vintage Original Juice" trademark, claiming that "Vintage Original Juice used on liquor products may cause the public to mistakenly believe that Vintage Original Juice is a description of the age, storage time, and other characteristics of liquor products." Over the years, this issue has indeed been repeatedly discussed. Many people do consider the numbers behind Vintage Original Juice as the year. According to media reports, several internal staff of Gu Jing Gong Jiu confirmed that "Vintage Original Juice" is just a trademark name, and the numbers behind it are just product codes, not representing the actual year. Gu Jing Gong Jiu also stated that "Original Juice" is not a professional term in winemaking, nor is it the concept of "Original Wine" or the grade of white wine, but simply an innovative marketing concept. Is this considered "false advertising"? It's hard to judge. Gu Jing Gong Jiu has always used the "vintage mash" label for marketing, which has been criticized in the industry. Many brands have followed suit and produced similar vintage wines, and whether they are true vintages is unknown. At least the concept of vintage mash has indeed been successful, and Gu Jing Gong has achieved rapid growth in vintage mash through extensive marketing, channel distribution, and personnel promotion. Different priced products are followed by different numbers, and there are no gaps in the price range. The market wants a certain price range, so that price range is promoted. Since it's not a true vintage, it's easy to set up. Gu Jing Gong's sales expense ratio has consistently remained around 30%, ranking at the forefront among listed liquor companies. In recent years, the ratio has decreased slightly, but the absolute value has been increasing. In 2023, the absolute value of sales expenses has reached 5.4 billion yuan, while the company's net profit attributable to shareholders is 4.59 billion yuan. Multi-channel, multi-point, high-intensity promotion has led to scale growth. Gu Jing Gong mainly adopts a strategy of "high exposure and high impact", and through the strategy of "sound in the air + visuals on the ground + year-round activities", it has comprehensively supported "Gu 20" to become a nationally recognized high-end product. Since 2016, "Gu 20" has been the exclusive title sponsor of the CCTV Spring Festival Gala for 8 consecutive years and has been the designated official wine for the World Expo 5 times. Starting in 2018, the "Gu Jing Gong Vintage Mash" sponsored train departed from Shanghai Hongqiao Station, focusing on business travelers by leveraging transportation hubs. In terms of distribution, within the province, Gu Jing Gong adopts a deep distribution channel model, and the depth of penetration into the provincial market has reached the township level. In 2023, the company had 3,744 sales staff, second only to Yanghe in the industry. Outside the province, it adopts a large business system, selecting capable local distributors and offering generous profits to maximize their enthusiasm for agency, to achieve rapid coverage of the local market and promote national coverage. In 2023, Gu Jing Gong's revenue from outside the province accounted for approximately 40%, with a national coverage rate of over 70%. Whether in marketing or promotion, Gu Jing Gong is skilled and resolute, and has indeed grasped the essence of "vintage mash" The opportunity to obtain this trademark. III. Conclusion Gu Jing's chairman, Liang Jinhui, started his career in sales and has worked his way up. Today, Gu Jing has a strong sales atmosphere and strong sales capabilities. In the short term, there is still momentum. However, whether Gu Jing can sustain rapid growth by maintaining its brand through large-scale marketing in the future, and whether the concept of original juice and the numbers are just a marketing concept and coding, will be a hidden danger, remains unknown