Luzhou Laojiao has just delivered a financial report that has left the market stunned. On August 25, the company released its 2026 semi-annual results, showing first-half revenue of 10.472 billion yuan, a year-on-year decline of 36.35%, while net profit attributable to shareholders fell to 4.339 billion yuan, down 43.37%.
The deeper concern lies in the second quarter, where performance took a cliff-like nosedive. Revenue for the period came in at just 2.447 billion yuan, a plunge of 65.54% year-on-year, with net profit attributable to shareholders at 631 million yuan, down a dramatic 79.45%. Attempts to reach the company for comment on this sudden second-quarter collapse were unsuccessful at the time of writing. So, what exactly is going wrong with this storied liquor brand?
The Cost of Holding the Price Line
Industry insiders believe the sharp decline in Luzhou Laojiao's performance is tied directly to its strategy of controlling supply and defending prices for its high-end products, particularly Guojiao 1573. Over the past few years, the baijiu industry expanded at breakneck speed, but as the sector now enters a deep adjustment phase, excessive channel inventory and falling product prices have become widespread headaches. In response, major distilleries have adopted different approaches.
Wuliangye chose to cut prices to protect volume. At the end of 2025, the company introduced a subsidy policy for distributors, effectively lowering the ex-factory price of its eighth-generation Wuliangye. This was widely described within the industry as its first disguised price cut in a decade. The strategy has paid off. Wuliangye's management revealed at its 2025 annual shareholder meeting that sell-through for its core product, the eighth-generation Wuliangye, achieved double-digit year-on-year growth.
Kweichow Moutai has also reduced prices for its non-standard products outside of the flagship Feitian. In early 2026, the distributor payment price for Moutai 1935 was adjusted from 798 yuan to 668 yuan per bottle. Recently, management disclosed at the semi-annual results briefing that contract execution for Moutai 1935 channel partners has already exceeded 80%, with healthy end-market sell-through.
By contrast, Luzhou Laojiao's management made a far more painful call. Guojiao 1573 would not be discounted, and shipment volumes would be deliberately throttled. At the shareholder meeting in late 2025, Chairman Liu Miao was unequivocal: "Raising prices brings pain, cutting prices means sacrifice. Non-leading brands cannot trade volume for lower prices. We will stick to a volume-price strategy that holds the line, refusing to sacrifice brand value for short-term sales."
But defending the price has come at a steep cost. In the first half, the company's mid-to-high-end liquor segment (which includes Guojiao 1573, Luzhou Laojiao Tequ, and Centennial Luzhou Laojiao Cellar-Aged Liquor) accounted for 87.86% of total revenue, yet production volume shrank by a staggering 77.4%. The company attributed this to "actively controlling production pace based on sales demand and inventory levels." Meanwhile, sales volume fell 42.53% year-on-year, revenue from this segment dropped 38.86%, and inventory still grew 8.6%.
Liquor marketing expert Xiao Zhuqing noted that the sharp second-quarter decline is a combination of three external market forces weakening simultaneously, compounded by the company's own decision to control supply. An aging population means fewer drinkers, purchasing power is under strain, and consumer willingness to spend remains low. These three factors together signal that the industry's deep adjustment is far from over. Luzhou Laojiao's downturn is a microcosm of the sector, layered on top of its proactive choice to reduce shipments and clear inventory.
The Great Price-Defense Debate
The company's steadfast refusal to cut prices has sparked considerable debate. This is not the first time Luzhou Laojiao has taken this path. During the previous industry downturn, it made a similar move. In 2013, as baijiu sales languished, the terminal retail price of Guojiao 1573 was raised from 1,389 yuan to 1,589 yuan per bottle, an increase of 14.4%. At the time, company representatives defiantly stated that the price hike was justified because "Guojiao 1573 is worth that money." The problem? Both Moutai and Wuliangye were cutting prices at the same time.
The result was predictable. In 2013, Luzhou Laojiao saw both revenue and net profit decline, with high-end liquor sales led by Guojiao 1573 falling 34.97%. The annual report still blamed external macro conditions, though it also conceded that weak execution and ineffective policy implementation played a role. By 2014, the company was forced to reverse course, cutting prices and halting shipments. That year, revenue plunged 48.68% to 5.353 billion yuan, while net profit attributable to shareholders collapsed 74.41% to 880 million yuan. The company later admitted in its filings that its "over-aggressive price defense of 1573 led to prolonged sales losses, disrupted channel flow, stagnant sell-through, and damaged distributor confidence."
Now, history appears to be repeating itself, and investors are worried. At the 2025 annual shareholder meeting held on June 30, one investor directly questioned whether the company was making the same mistake. In response, General Manager Lin Feng argued that the previous downturn was driven by channel power, where discounting was highly effective. This time, however, the industry faces a long-term structural transformation, not a short cyclical dip, so past experience cannot be simply applied. He revealed that since the Spring Festival of 2026, Guojiao 1573 has held its ground, with terminal prices for the 52-degree version stabilizing. According to him, market performance has validated the pricing strategy, and the notion that "without discounts, products won't sell" no longer applies. He added that premiumization is the foundation for leading baijiu companies going forward, and that Guojiao 1573's pricing stance is a strategic choice for long-term growth, with its competitive advantages likely to emerge over the next three to five years.
Yet the cliff-edge decline in financial results has shaken market confidence in that assertion. Short-term pressure remains intense. A liquor store owner in Beijing told reporters that at his shop, the 53-degree Guojiao 1573 and the eighth-generation Wuliangye are priced similarly, both around 1,000 yuan. However, the Wuliangye sells far better, moving two bottles every day or two, while Guojiao 1573 has sold less than one case (six bottles) all year. Market sources also indicate that in certain regions, Luzhou Laojiao has lost significant ground to Wuliangye, which has not managed to hold its own price line. Over the past year, the wholesale price of the eighth-generation Wuliangye has consistently stayed below that of Guojiao 1573.
The channel itself is under strain. In the first half, Luzhou Laojiao's contract liabilities stood at 2.437 billion yuan, down 27.62% from the end of 2025, signaling weakening willingness among distributors to prepay. Additionally, the number of domestic distributors fell by 162 on a net basis, with 263 exiting and only 101 new ones added.
The silver lining is that prices have held. Gross margin for the overall liquor business was 85.51% in the first half, with mid-to-high-end products achieving 90.74%, roughly flat year-on-year. Xiao Zhuqing believes that Luzhou Laojiao's determined approach of controlling supply and defending prices is a strategic choice to sacrifice short-term financials in order to protect long-term brand value and channel health. He points out that Guojiao 1573 has become the most successful high-end baijiu at the 1,000-yuan price point in terms of price control. For the company, Guojiao 1573 is the profit engine and brand cornerstone. If it followed the industry trend of cutting prices to boost volume, it could temporarily inflate revenue figures, but it would shatter the price foundation of Guojiao, erode its premium positioning, and eliminate channel price differentials, leaving distributors with no profit incentive to promote the product. This would trigger a vicious cycle where falling prices lead to even less willingness to sell.
However, Xiao also cautions that the price-defense strategy has its costs. "Controlling supply and reducing production directly shrinks shipment scale, putting pressure on short-term revenue and profit. Price defense is not a one-time fix; it only works if real end-market consumption keeps pace. If prices stabilize but bottle-opening consumption remains weak and channel inventory stays high, risks will continue to accumulate. Holding the price line protects the foundation, but it cannot fully counteract the broader demand contraction," he said.
The Long Road Back to the Top Three
Despite the challenges, Chairman Liu Miao remains fixated on the goal of "returning to the top three." At the 2025 annual commendation conference in early February, he reiterated the ambition, calling 2026 the opening year of the "15th Five-Year Plan" and urging all employees to push for a top-three industry ranking.
This goal has become something of an obsession. When Liu took the helm in 2015, he immediately set the "return to top three" target. At the time, Luzhou Laojiao's annual revenue was just 6.9 billion yuan, ranking fifth in the industry. Liu moved swiftly, slashing over 1,000 product codes, restructuring around a "dual-brand, three-category" strategy, and pouring resources into the premiumization of Guojiao 1573. A series of supporting measures, including price hikes, supply controls, organizational overhauls, and decentralization, followed in quick succession.
In the years that followed, revenue climbed steadily, surpassing 30 billion yuan by 2023, and the gap with Yanghe Brewery ahead of it narrowed year by year. Unfortunately, just as Luzhou Laojiao seemed within striking distance of the top three, Fenjiu surged past it. From 2022, Fenjiu overtook Luzhou Laojiao in revenue, and by 2025, it had also overtaken it in net profit.
Xiao Zhuqing argues that in the current environment of intense competition and shrinking demand, breaking back into the top three in the short term is a tall order. The company cannot rely solely on price defense; it needs multi-dimensional breakthroughs. He outlines four priorities. First, achieve a "volume-price balance." This means not just controlling supply, but also boosting consumer cultivation and improving the real bottle-opening rate, converting channel price differentials into actual end-market sell-through. Second, fill the gaps in national expansion. Guojiao's dominance in the Sichuan-Chongqing home market is strong, but penetration in some provinces outside the region has room to grow. The company should strengthen banquet, business, and circle-based consumption operations to translate brand momentum into external sales. Third, activate the waist-level products to drive incremental growth. The company cannot bet everything on the single high-end product of Guojiao. The Tequ and Cellar-Aged series need to be scaled up to contribute volume and offset the shortfall from softening high-end demand. Fourth, seize emerging consumption trends by replicating the success of the low-alcohol Guojiao variant, while carefully managing the market launch of the new Guojiao vintage products. This would expand the value ceiling upward while solidifying the base downward.
Over the past decade and more, Liu Miao has publicly voiced the "return to top three" ambition a dozen times. Yet after all these years, the dream remains unfulfilled, and with each passing quarter, it seems to slip further out of reach.
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