Dukang Distillers revenue down $117m, profits fall 88%

Consumers clamp down on luxury giftings and lavish banquets.

Demand for premium baijiu has siginifcantly decreased, as PRC’s baijiu industry is drastically shaken by the government’s austerity measures along with the decreasing number of lavish official banquets and receptions.

In a release, Dukang revealed that sales volume for Luoyang Dukang’s Premium series took a sharp downturn, translating into a harsh decrease in revenue from RMB893.0 million to RMB318.3 million.
Revenue from Siwu’s operations continues to fall with the increased market competition. The falling prices from first-tier brands have a tremendous effect on second- and lower-tier brands when considering gift options. This thus created a more intense market competition among second- and lower-tier brands, causing a tighter squeeze in their profit margins.

Here's more from Dukang Distillers:

The Group’s net profit for FY2014 suffered an 88.7% decline due to selling and distribution expenses required for advertising and promotional activities, which is necessary for maintaining Dukang’s brand awareness in the market.

Notably, administrative expenses decreased 17.6% as a result of the Group’s cost saving efforts by reducing staff costs and travelling expenses.

Mr. Zhou Tao, Dukang’s Executive Chairman and Chief Executive Officer, commented, “FY2014 has been an exceptionally tough year for us as China’s baijiu industry is drastically shaken by the PRC Government’s austerity measures. Along with the decreasing number of lavish official banquets and receptions, the demand for premium baijiu has become significantly lower. As a result, we have strategically shifted our production mix and sales focus from our premium series to non-premium series to cater to China’s growing grass-roots market.

In the past year, we noticed that many baijiu manufacturers have also undergone product reshuffling and internal restructuring to accommodate the new target group who has lower spending power. Recently, some first-tier baijiu manufacturers have reported a slight rebound in their earnings. We hope that this is a sign that the worst is over for the baijiu industry.

We believe that baijiu drinking is deeply rooted in the Chinese culture and will have a sustainable market demand. Therefore, we will continue our sales and marketing efforts to maintain our market share during this challenging time.”