As a gem of China's traditional liquor culture, baijiu has been passed down for millennia and occupies a unique and vital position in the nation's economic and cultural landscape. From high-end liquor stores in bustling cities to small shops in rural towns, baijiu is ubiquitous—whether for business banquets, festive celebrations, or family gatherings—serving as a crucial bond for interpersonal connections.
As one of the few foreign-controlled baijiu enterprises in China, Sichuan Swellfun Co., Ltd. (600779.SH, "Swellfun") has set a record of eight general manager changes in 15 years, with the current GM, Hu Tingzhou, having assumed the role just last July. The disclosure of its Q3 2025 financial report has further highlighted the company's operational struggles.
**Performance Under Pressure: Q3 Plunge Puts Annual Targets at Risk** Both Q3 and year-to-date core financial metrics showed significant negative growth, with revenue and profit declines far exceeding industry averages. Q3 revenue plummeted 58.91% YoY to RMB 850 million, while cumulative revenue for the first three quarters fell 38.01% to RMB 2.348 billion. This volatility stemmed from Swellfun's channel control measures, including shipment suspensions and reduced promotional incentives, which sharply curtailed deliveries.
Net profit fared worse: Q3 net profit attributable to shareholders dropped 75.01% YoY to RMB 221 million, while the nine-month figure tumbled 71.02% to RMB 326 million. The steeper profit decline versus revenue reflects deteriorating profitability. Gross margin for the first three quarters slid 3.45 percentage points to 81.35%, with premium products (down 2.98 ppts to 83.05%) and mid-tier products (down 8.65 ppts to 54.51%) both seeing compressed margins.
Operating cash flow swung to a net outflow of RMB -867 million, down 212.02% YoY, signaling heightened liquidity pressure. This was driven by lower sales revenue, relaxed credit terms for some distributors, and increased procurement and operational costs after the Qionglai industrial chain project commenced operations. Cash reserves shrank 81% from year-end 2024 to RMB 405 million by September, eroding financial buffers.
**Channel Instability: Price Controls Fail to Stem Erosion** Q3 failed to curb the ripple effects of weak core product competitiveness. Despite adding 22 domestic distributors, Swellfun lost 14, ending September with just 64 (plus 2 overseas, down by 3). Rumors of key distributors exiting in critical markets like Henan further dented channel confidence.
Total sales volume fell 24.43% YoY to 6,498.06 kiloliters, with Q3 declines accelerating due to shipment halts. Traditional wholesale channels—still 74.56% of revenue—collapsed 50.45% in sales (RMB 1.647 billion) and 42.27% in volume (4,417.07 kl), while newer channels grew 71.24% (RMB 562 million) but remained too small to offset losses.
Price discipline unraveled: flagship product Zhenniang No. 8 saw wholesale prices (RMB 360/bottle) undercut by subsidized e-commerce offers as low as RMB 271—a nearly RMB 90 inversion. Tightening promotions from "buy-six-get-one" to "buy-ten-get-one" failed to stop distributors dumping stock, perpetuating a vicious cycle of price collapses, margin erosion, and waning confidence.
**Management Flux: Revolving Door Undermines Strategy** Swellfun’s 15-year carousel of eight GMs—averaging under two years per tenure—has left strategic continuity in tatters. Once a peer of Moutai and Wuliangye in the premium segment, its identity now oscillates amid leadership churn, hampering long-term planning and crisis response.
Foreign ownership complicates governance, as frequent executive changes hinder alignment between global stakeholders and local market realities. This instability saps internal efficiency and dealer trust, further constraining competitiveness.
**Outlook: Structural Headwinds Meet Self-Inflicted Woes** Swellfun’s crisis stems from cyclical industry pressures—macroeconomic shifts, policy changes, and market consolidation—compounded by chronic weaknesses: uncompetitive core products, flawed channel management, and erratic strategy execution. While exploring cultural IP tie-ups, new retail formats, and lower-alcohol products, tangible recovery remains distant in a sector undergoing profound realignment. Investors should brace for a protracted turnaround.
Disclaimer: Opinions expressed herein do not constitute investment advice.
Comments