Zhenjiang Liquor Liudu Group Co., Ltd. (Stock Code: 6979.HK) successfully listed on the main board of the Hong Kong capital market on April 27, 2023. The company is a Chinese liquor company dedicated to providing high-quality baijiu products mainly with sauce-flavor characteristics. It operates four major baijiu brands, including the flagship brand Zhenjiang, the rapidly developing brand Liudu, as well as two regional leading brands Xiangjiao and Kaikouxiao. Frost & Sullivan (hereinafter referred to as "Frost & Sullivan") provided exclusive industry advisory services for the listing of Zhenjiang Liquor Liudu Group Co., Ltd., and hereby warmly congratulate them on their successful listing.
Zhenjiang Liquor Liudu Group Co., Ltd. (hereinafter referred to as 'Zhenjiang Liquor Liudu') successfully listed on April 27, 2023, with the company planning to issue 491 million H shares. The issue price per share is HK$10.82, raising a net amount of approximately HK$4.99 billion.
During the process of listing in Hong Kong this time, Frost & Sullivan mainly undertook the following tasks: helping the issuer accurately and objectively understand its positioning in the target market, using objective market data to discover, support and highlight the issuer's competitive advantages, assisting the issuer, investment banks and other intermediaries in completing the writing of relevant parts of the prospectus (such as overview, competitive advantages and strategy, industry overview, business and other important chapters), helping the issuer complete communication with the Hong Kong Stock Exchange and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and assisting the issuer in completing feedback on various industry-related issues from the Hong Kong Stock Exchange, etc.
Investment highlights
The company is a Chinese liquor enterprise dedicated to providing high-quality baijiu products mainly with sauce-flavored characteristics;
The company possesses vast production capacity in scarce and top-tier liquor-producing regions, consolidating its core competitiveness and long-term growth potential;
The company's beloved products confirm its rigorous baijiu brewing technology and solid product development capabilities;
The company has a wide multi-channel sales network characterized by immersive promotion strategies;
The company has visionary founders and experienced senior management personnel.
According to the Frost & Sullivan report, in terms of revenue for 2021:
Ranked 14th in the Chinese liquor industry;
Ranked fourth among private Chinese liquor enterprises;
It is the third largest company in the Chinese liquor industry that provides three types of liquor products;
The company's Hunan Xiangjiao Liquor Industry Co., Ltd. is the second-largest liquor company in Hunan Province;
Its brand Zhenjiu ranks fifth among Chinese sauce-flavored liquor brands;
Its brand, Lidu, ranks fifth among Chinese blended-flavor liquor brands.
Overview of the Chinese Baijiu Industry
Baijiu is a traditional liquor produced and consumed in China for thousands of years. Similar to the status of wine in French culture and beer in American culture, baijiu plays a very important role in Chinese culture. In 2021, by revenue, the market share of Chinese baijiu accounted for 69.5% of China's alcoholic beverages market, exceeding the market share of wine in France's alcoholic beverages market at 49.9% and beer in the US alcoholic beverages market at 50.5%.
For the Chinese, white liquor is not only an alcoholic beverage but also a cultural heritage. White liquor is a colorless and clear liquor made by distilling fermented sorghum, rice, or other grains with varying alcohol contents. As a fermenting agent, the yeast is an important material for the saccharification of white liquor and a key component in the production process. Yeast is composed of molds, yeast, bacteria, and their metabolites, which are cultivated on a substrate rich in starch through a fermentation process. This process breaks down the starch in the grains into sugars through saccharification, which are then fermented into alcohol.
According to aroma characteristics, Chinese liquor can be divided into 12 types of fragrance. The mainstream fragrances include strong-flavor type, sauce-flavor type, light-flavor type, and blended-flavor type. In terms of revenue in 2021, they accounted for 96.3% of the entire Chinese liquor industry. The remaining eight types, including rice-flavor type, special-flavor type, phoenix-flavor type, medicinal-flavor type, rich-flavor type, old Baijiu-flavor type, fermented bean curd-flavor type, and sesame-flavor type, only accounted for 3.7% of the market share, thus falling into other categories. Among these liquor fragrance types, sauce-flavor liquor is becoming increasingly popular due to its unique flavor. The secret to the unique flavor of sauce-flavor liquor lies in its unique piled fermentation process, which produces a fresh taste commonly found in fermented soybeans.
Baijiu can be divided into four price ranges based on sales volume. High-end products refer to those with a recommended retail price of RMB 1,500 yuan (inclusive) or more per 500 milliliters; mid-range products refer to those with a recommended retail price between RMB 600 yuan (inclusive) and RMB 1,500 yuan per 500 milliliters; mid-low-end products refer to those with a recommended retail price between RMB 100 yuan (inclusive) and RMB 600 yuan per 500 milliliters; and low-end products refer to those with a recommended retail price below RMB 100 yuan per 500 milliliters. Dividing the baijiu market into four price ranges is in line with industry practice, reflecting the positioning of baijiu social products and consumers' behavior when purchasing baijiu. Consumers often buy mid-range and high-end baijiu for gatherings and business occasions, choose mid-low-end or low-end products for personal consumption, and share them with friends and family.
Market scale of China's liquor industry
In the past few years, the government has strengthened regulatory provisions, indirectly affecting consumption and sales in the liquor industry. The 'Three Public Expenses Policy' and the 'Several Opinions on Carrying Out a Special Campaign for Three Products in the Consumer Goods Industry to Create a Good Market Environment' (hereinafter referred to as the 'Several Opinions') have had an impact on China's liquor industry. The 'Three Public Expenses Policy' limits government departments from incursing high administrative expenses for official receptions, procurement, and business trips, resulting in a reduction in liquor consumption by government officials.
In addition, the release of 'Several Opinions' in 2016 aimed to regulate the consumer goods market and further adversely affected the liquor industry. Mainly due to the 'Several Opinions' published in 2016, the market scale of China's liquor industry decreased from RMB 565.4 billion in 2017 to RMB 536.4 billion in 2018, calculated by revenue. At the same time, the number of market participants in China's liquor market decreased from 1,593 in 2017 to 965 in 2021. The government's reduction in spending on liquor led to a shift in liquor consumption towards business gatherings and also laid the foundation for the stable and healthy development of the industry. Therefore, calculated by revenue, the market scale of China's liquor industry increased from RMB 536.4 billion in 2018 to RMB 603.3 billion in 2021.
Driven by regulatory measures to guide healthy industry growth, the continuous trend towards high-end products, and the increasing popularity of sauce-flavored baijiu, China's baijiu industry is expected to continue expanding in the coming years. In addition, the increasing penetration rate of mid-high-end and high-end baijiu will further promote the development of China's baijiu industry.
Market scale of China's liquor industry (by revenue
2017 to 2026 (estimated)
Source: Frost & Sullivan report
In terms of fragrance type, since the launch of the liquor classification standard in 1979, strong-flavor liquor has always been the mainstream product in Chinese liquor consumption. In 2017, strong-flavor liquor accounted for 51.9% of the Chinese liquor industry. The sauce-flavor type, represented by Guizhou Moutai, China's largest liquor brand, has the highest growth potential among all fragrance types. In 2021, Chinese liquor companies produced only about 6 million liters of sauce-flavor liquor, accounting for about 8.4% of China's total liquor production. The market scale of Chinese sauce-flavor liquor in 2021 was RMB 190 billion, accounting for 31.5% of the entire Chinese liquor industry.
In addition, sauce-flavor liquor accounts for more than 45% of the profits of China's entire liquor industry, with sales profits reaching RMB 78 billion in 2021. In recent years, sauce-flavor liquor has become very popular due to its high-quality products, rich aroma layers, and unique freshness that cannot be found in other types of liquor. The market share of sauce-flavor liquor has also increased driven by Kweichow Moutai in Guizhou, China, making it the second-largest flavor type by market size since 2018. The market scale of sauce-flavor liquor increased from RMB 105.6 billion in 2017 to RMB 190 billion in 2021, with a compound annual growth rate of 15.8%.
In 2021, China's sauce-flavor liquor industry benefited from the growth in consumer demand for high-quality and unique production processes, as well as an increase in the demand for rich-flavored products, resulting in an unexpected surge in sales. As a result, sauce-flavor liquor companies have expanded their production capacity to meet this demand. Therefore, it is expected that the market scale of Chinese sauce-flavor liquor will continue to expand, with the aroma type becoming the largest in 2026, accounting for 41.8% of China's entire liquor industry that year.
Market scale of Chinese liquor industry (by revenue) divided by fragrance type
2017 to 2026 (estimated)
Source: Frost & Sullivan report
In terms of price range, mid-range baijiu has occupied the main share of China's baijiu industry from 2017 to 2021 due to its affordable prices and high quality. Meanwhile, driven by the continuous improvement in consumer income levels and consumption upgrading in China, high-end baijiu has gained more market share in recent years.
With the improvement in consumer purchasing power and the high-end development of liquor brands, it is expected that Chinese liquor consumption will shift towards mid- to high-end products. The market size for mid- to high-end liquor products is expected to reach 371.9 billion yuan in 2026, with a compound annual growth rate of 12.3% from 2022 to 2026, which is the highest among all price ranges of liquor products. The market share for mid- to high-end liquor products is expected to reach 48.3% by 2026, an increase of 12.6% compared to 2021.
Market scale of China's liquor industry (by revenue) divided by price range
2017 to 2026 (estimated)
Source: Frost & Sullivan report
The competitive landscape of the Chinese liquor market
In 2021, the market scale of China's liquor industry reached 603.3 billion yuan. In 2021, by revenue, the top 15 companies accounted for 56.2% of the total market share. The Group ranked 14th among market participants, accounting for 0.8% of the market share in China's liquor industry by revenue.
Top 15 Companies (China) in the Baijiu Industry by Revenue in 2021
Source: Frost & Sullivan report
In 2021, the Group's revenue was RMB 5.1 billion, ranking fourth among private companies in China and third among Chinese liquor companies that offer three types of fragrant liquor products. Our products include sauce-flavor, blended-flavor, and strong-flavor types, covering nearly 85% of the Chinese liquor industry.
Top 5 Private Enterprises (China) in the Baijiu Industry by Revenue in 2021
Source: Frost & Sullivan report
Key market drivers in the Chinese liquor market
According to the Frost & Sullivan report, the main market drivers and development trends in China's liquor industry include the following:
With higher product quality, richer aroma layers, and a unique fresh taste, coupled with the excellent brewing techniques of sauce-flavored liquor, sauce-flavored liquor has become a new driving force for the development of China's liquor industry. By market size, sauce-flavored liquor will become the most dominant flavor type in the liquor industry by 2026.
Due to the low content of volatile substances in sauce-flavored baijiu, it is considered to have a lower irritant effect on the human body and is relatively beneficial for health. At the same time, it maintains a rich and layered aroma. Since the production of mid-high-end and high-end sauce-flavored baijiu requires unique geographical environments and longer distillation times for baijiu brewing techniques, sauce-flavored baijiu has become a scarce product. With its superior product quality and diverse flavors, sauce-flavored baijiu has become the first choice for many consumers seeking mid-high-end and high-end baijiu products. In addition, the consumption of sauce-flavored baijiu has gradually expanded nationwide, rather than being concentrated in specific regions. With the continuous popularization of sauce-flavored baijiu, the market scale for sauce-flavored baijiu will continue to expand.
Although most liquor brands sell their products through distributors and retail stores, an increasing number of mid-to-high-end and high-end liquor brands are developing multi-channel sales networks, such as experience stores and direct sales teams, to attract customers. Experience stores allow brands to showcase their products and values in a space filled with enthusiasm and cohesion. This approach is particularly effective in helping customers learn more about mid-to-high-end and high-end liquor brands and their products, and can create a more immersive and engaging brand experience.
Such experiential stores also allow brands to promote products and create a more personalized shopping experience. By offering tasting events, workshops, and other interactive elements, brands can provide customers with an educational experience that is more interactive. By offering product discounts, brands can also encourage customers to try different products. This move helps to build deeper brand loyalty and encourage consumers to repurchase.
In addition, experience stores can help brands stand out from competitors. By creating unique and immersive brand experiences, brands can differentiate themselves in competition and attract new customers. At the same time, direct sales teams can promote the products of high-quality liquor companies to potential customers through direct interaction, enabling the company to establish close customer relationships and understand consumer preferences. Due to these benefits, more and more high-quality liquor companies are developing innovative marketing strategies to reach and maintain their customers.
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Frost & Sullivan has extensive research experience in the food and beverage industry, assisting well-known enterprises in successfully listing on capital markets. Recent successful listings include: DAS Group (1405.HK), Bai Guoyuan (2411.HK), Zhengwei (2147.HK), Weilong (9985.HK), Shuangcaizhuang (2321.HK), Youran Animal Husbandry (9858.HK), Jiulongwang (1927.HK), Yumart (9987.HK), Suning China (9987.HK), Nongfu Spring (9633.HK), Fengxiang Food (9977.HK), Simore (6969.HK), China Feihe (6186.HK), China National Tobacco International (6055.HK), Youpin 360 (2360.HK), Wugu Mofang (1837.HK), Baby Tree (1761.HK), Haidilao (6862.HK), Yongshou Agriculture (8609.HK), Longhui Holdings (1007.HK), Xinrong International (1587.HK), Yiyuan Liquor (8146.HK), Jierong International (2119.HK), Bingshi International (1705.HK), Nissin Foods (1475.HK), Asia Grocery (8413.HK), Chow Tai Kung Duck (1458.HK), COFCO Meat (1610.HK), Yihai International (1579.HK), Zhongdi Dairy (1492.HK), Dali Foods (3799.HK), Manor Ranch (1533.HK), Wanzhou International (0288.HK), and others.
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*The above order is not sequential and is arranged in reverse chronological order based on listing time.
