In recent discussions surrounding the liquor industry in China, a stark warning was issued by Hao Hongfeng, chairman of JiuXian.com, emphasizing the precarious situation faced by distributors of Baijiu, a traditional Chinese liquor“Distributors are on the brink; if manufacturers continue to disregard their plight and add pressure through inventory stacks, a collapse is inevitable,” he cautionedHis statement highlights a troubling reality: while many liquor companies witness a decline in revenue and profits, it is the distributors grappling with the brunt of this adversity.

The climate has indeed turned frosty for distributorsIndustry reports reveal that, unlike corporate entities that merely report dwindling profits without incurring losses, the distributors are left with inventory they cannot sell as consumer demand wanesThey are not just struggling with diminished sales, but are also pressured by manufacturers demanding excessive stock levels, known colloquially in the industry as "suppression of goods" or “pressure stocking.” This phrase encapsulates a practice where manufacturers push more products onto their distributors to maintain revenue benchmarks, ignoring the resulting unsold stock piling up in distributor warehouses.

The Chinese adage "share a common fate," which translates to "if the lips are gone, the teeth will be cold,” underscores the necessity of viewing distributors as essential partners in the supply chain rather than mere storage solutions

In response to these mounting pressures, some liquor companies have started to ease their rigid inventory demands, allowing distributors some breathing roomSuch measures symbolize a shift in perspective; by 2025, the hope is that industry leaders will recognize the need for a more collaborative approach with their distributors—an allied front during economic hardships.

Data reflects a disheartening trend for Baijiu salesTraditionally, just as Mid-Autumn Festival approaches, distributors anticipate sales to reach approximately 30% of their yearly targets; however, in 2024, this figure plummeted to a mere 10%. Forecasts from the liquor industry suggest a stark downturn in market volume, estimating an overall decline surpassing 20% when comparing 2024’s sales with those of the previous year.

While many might perceive robust earnings from established liquor brands like Maotai, Wuliangye, and Shuiluowan, it is pertinent to contextualize what 'decline' means for these companies

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For them, it might be a fall in profit growth rates rather than an outright loss in operationsIn contrast, distributors often feel the industry’s chill more acutely as they bear the repercussions of reduced consumer spendingThey are often the last to see compensation when sales figures tumble.

Taking a specific example, Huazhi Liquor Retail Company, one of the leading liquor distributors listed on the A-share market, reported total revenue of 7.83 billion yuan for the first three quarters of 2024, reflecting a 5.1% decrease year-on-yearTheir net profits also dipped significantlyMoreover, the widespread issue resonates across many distributor companies, where a giant such as Gedeyingxiang faces equally grim realities, grappling with more than 300 retail shops nationwide yet struggling under the weight of mounting inventories that threaten their survival.

The statistics shared by the China Alcoholic Drinks Association paint a clear picture; more than 60% of distributors reported an increase in unsold inventory in the first half of 2024, while over 30% were feeling stress from cash flow issues

This stark revelation illuminates the pressure cooker environment in which these distributors operate — not only is profit margin painful to bear, but the very essence of their business models is under siegeOnly about half the distributors managed to fulfill the expected sales targets set by manufacturers, indicating a reluctance to continue the traditional practices of 'pushing volume' that often led to financial pitfalls.

One can't help but wonder why the industry finds itself in such a contradictory state where corporations report profits yet distributors languish in hardshipThe answer lies in the structure of the liquor distribution ecosystemDistributors serve as both a reservoir for stock and the keystone for revenue generation for manufacturersHowever, they are silently bearing dual burdens—suffering from reduced consumer appetite while simultaneously dealing with unrealistic expectations from manufacturers.

The cultural context surrounding Baijiu consumption plays a vital role in this discussion

Baijiu has traditionally catered to an older demographic—those born in the 60s, 70s, and early 80s—largely participating in business dinners and family gatherings where the spirit is synonymous with socializationHowever, as public health issues arise, coupled with shifting consumer preferences toward lighter beverages like wine or flavored alcohol, the core consumer base is diminishingThis generational shift exacerbates the struggle for distributors as they contend with a rapidly contracting pool of traditional drinkers.

Moreover, the struggle for sales may now trickle down to occasions such as family gatherings during the Spring Festival, as evidenced by reports showing nearly half of distributors in regions like Henan witnessing sales declines of over 30% this yearEven with shrinking sales, manufacturers continue to pressure these distributors for higher stock levels, creating a vicious cycle that further entrenches financial distress among distributors.

The stark likelihood that manufacturers’ insistence on pushing products does not correlate to actual market demand poses a significant threat

The relationship between manufacturing firms and their distributors could be described as an unbalanced power dynamicMany manufacturers, in their position of control in the production and distribution chain, apply pressure to absorb unsold inventory through unwarranted expectations regarding sales volume that do not align with market realities.

Take Yanghe, for instance: distributors were called upon to sustain a growth rate of 10% even in light of poor sales conditionsDistributors have reported that maintaining such a rate amidst high stock and diminished prices feels increasingly untenableThis seemingly relentless pressure leads to increasing volumes of unsold product, forcing distributors to resort to fire sales at heavily discounted prices just to relieve some of their inventory burden.

Reports indicate staggering average profit margins among distributors; in regions like Henan, margins have shrunk to less than 15%, with many seeing net profit margins yield 5% or less

The numbers indicate that some even tread in loss territoryWhen one adopts a comparison with liquor companies claiming revenue dips but still treading in profit, the situation appears enormity skewedDistributors financially constrained by decreasing volumes find themselves stuck in an economic quagmire desperately needing relief.

Many distributors are crying out for a change—urging top-tier liquor manufacturers to adjust their operational metrics for 2024 and beyondBy refining their focus outward and aligning expectations with market conditions, liquor companies could relieve their distributors from the burdens of excessive inventoryStatistics suggest that, as of late 2024, inventories among listed A-share liquor firms have swelled to a staggering 136.35 billion yuan, leading to protracted periods of turnover that can stretch over 2,000 days in certain casesUnder such circumstances, the focused objective should shift from merely pushing inventory to fostering true sales growth and product movement.

Another avenue being explored by manufacturers includes partnerships with banks to provide financing solutions aimed at assisting distributors in easing their purchase processes

By taking on the interest of loans, the goal is to ensure that distributors have the cash flow needed to keep business running even under strained sales conditionsHowever, such financial exploits can yield collateral issues if sales remain stagnant.

In conclusion, the Baijiu landscape embodies a paradox where coverage in earnings reports brushes over the intensive challenges that running a distributor presents todayAs pointed out, the crux of successful operations lies in terminal sales volume, not just the capacity of distributors to stock goodsManufacturers need to pivot towards genuine collaboration with their distribution partners, crafting a cohesive strategy that focuses on actual market-driven sales rather than strictly adhering to arbitrary sales pressureOnly through reconsideration of collaboration with distributors and placing emphasis on cultivating consumer interest and dynamic market responses can the industry hope to restore balance and move towards a flourishing future.