As Chinese liquor companies release their mid-year reports in August, data comparisons reveal signs of another industry reshuffle. Yanghe, once ranked third in the "Moutai-Wuliangye-Yanghe" triumvirate and known as the "leading Jiangsu liquor brand," is accelerating its fall from the top tier.

On the evening of August 18, Jiangsu Yanghe Distillery Co.,Ltd. (Stock Code: 002304.SZ) disclosed its 2025 interim performance report. The financial report showed that the company achieved revenue of 14.796 billion yuan in the first half of the year, down 35.32% year-over-year; net profit attributable to shareholders was 4.344 billion yuan, plummeting 45.34% year-over-year.

Regarding its performance, Jiangsu Yanghe Distillery explained that the decline was mainly due to market conditions affecting the liquor sales market, resulting in decreased product sales volume and sales revenue. According to Wind data, Yanghe's revenue and net profit declines in the first half were the largest since its IPO in 2009.

From the perspective of full-year 2024 revenue scale, Jiangsu Yanghe Distillery has been overtaken by Shanxi Fenjiu and Jizhou Laojiao, with its industry ranking falling from third to fifth. Last year, Yanghe was also the only company among the top five listed liquor companies to record negative growth.

Some market analysts believe that Jiangsu Yanghe Distillery's deep adjustment is nearing its end and is about to welcome a performance turnaround. However, in the increasingly fierce competition for market share in the liquor industry, fighting a successful comeback battle may be the urgent challenge Yanghe needs to solve.

**Rise to Fame with "Blue Classic"**

"Northeast Tiger, Northwest Wolf, neither can outdrink the Jiangsu Little Sheep" - this popular saying in the liquor industry reflects Yanghe's former prowess as Jiangsu's leading liquor brand.

According to public information, Jiangsu Yanghe Distillery is headquartered in Suqian City, Jiangsu Province. Its predecessor can be traced back to 1949 when several private brewing workshops including Yuyuan, Xiangtai, Fengtai, and Guangquanju merged to form the "Huaihai Trading Company Third Branch Yanghe Workshop." In 1953, it was renamed "Local State-owned Yanghe Distillery."

Despite its long history, Yanghe's early performance was unremarkable. China held five national wine evaluation conferences, and in the first two most prestigious events - which selected the "Four Famous Liquors" in 1952 and "Eight Famous Liquors" in 1963 - Yanghe failed to make the list. It wasn't until the third evaluation in 1979 that Yanghe Daqu was listed among the eight national famous liquors. Thereafter, it returned to mediocrity. In the 1990s, while Shanxi Fenjiu, Luzhou Laojiao, and Jiuguijiu went public, Yanghe missed the opportunity and remained a small-to-medium regional distillery.

The turning point came in 1998 when the slogan "Jiangsu Liquor Revival" was proposed. Yang Tingdong took control of Yanghe that year, launching comprehensive reforms. In 2002, Yanghe completed a sophisticated shareholding reform and officially established Yanghe Co., Ltd. The reform maintained the state-owned enterprise nature while maximizing external resources and activating management enthusiasm, enabling Yanghe to better adapt to market competition.

In August 2003, Yanghe's premium product line "Blue Classic Series" was launched. At that time, liquor packaging was predominantly red. Products like Haizhilan (Sea Blue), Tianzhilan (Sky Blue), and Mengzhilan (Dream Blue) entered the market with differentiated fresh blue packaging, combined with sophisticated advertising slogans like "The broadest thing in the world is the sea, higher than the sea is the sky, and greater than the sky is a man's sentiment," quickly winning consumer favor. This sparked a "blue storm" in Jiangsu Province that gradually expanded to national markets.

Soon after, Blue Classic replaced Yanghe Daqu as the core product, becoming the key engine driving Yanghe's takeoff. The impact of a successful core product was immediate: Yanghe's revenue was 200 million yuan in 2003, broke through 1 billion yuan in 2006, and reached 2.682 billion yuan in revenue and 740 million yuan in net profit in 2008. In November 2009, Jiangsu Yanghe Distillery raised 2.7 billion yuan and successfully listed on the Shenzhen Stock Exchange. The same year, the Dream Blue series was internally segmented into M3, M6, and M9, targeting the premium segment above 300 yuan.

2010 marked another highlight for Yanghe. It not only acquired fellow Jiangsu distillery Shuanggou, but also surpassed former rivals like Jiannanchun and Luzhou Laojiao with revenue of 7.619 billion yuan, officially becoming "China's third-largest liquor company" after Moutai and Wuliangye.

Notably, Yanghe's comeback from 2003-2012 coincided with China's golden age of liquor. During this period, national liquor production grew from 3.31 million tons to 11.53 million tons, and industry scale expanded from 54.5 billion yuan to 446.6 billion yuan.

For over a decade afterward, China's premium liquor landscape was firmly dominated by the "Moutai-Wuliangye-Yanghe" triumvirate.

**"Voluntary Deceleration" Lacks Conviction**

Today, Jiangsu Yanghe Distillery's situation can only be described as facing internal troubles and external threats. Key operational indicators in this interim report reflect the company's development challenges.

First is the difficult reality of premiumization. Medium and high-end liquors have always been Yanghe's main products, including the Blue Classic series. However, in the first half, revenue from medium and high-end liquors was 12.672 billion yuan, down 36.52% year-over-year; ordinary liquor revenue was 1.841 billion yuan, down 27.24% year-over-year.

The current market increasingly favors premium liquors, as evidenced by Kweichow Moutai's recently disclosed strong performance. Previously, Yanghe vacillated between "targeting premium or defending mid-to-low end," resulting in a lack of truly premium products. In recent years, while launching premium products like Dream Blue M9 and handcraft vintage liquors, success and failure both stem from "Blue Classic." Consumer early perception of Yanghe was somewhat fixed by mid-to-low-end products like Sea Blue and Sky Blue, making Dream Blue's assault on the premium market extremely difficult.

Second, Yanghe's dealer network loosening has become an amplifier of this crisis, with dealers showing increasing "centrifugal force." The financial report shows that the total number of dealers in the first half was 8,609, a decrease of 257, with out-of-province dealers decreasing by 268. Out-of-province market revenue was 7.39 billion yuan, plummeting 42.7% year-over-year, far exceeding the 25.8% decline in-province. Calculating approximately 1.32 million yuan revenue contribution per dealer, channel contraction alone directly caused over 350 million yuan in revenue evaporation.

Historical data shows Yanghe primarily adopted a "1+1" deep distribution model: "dealer system + company sales representatives." The company dispatched business representatives to dealers, responsible for channel development, marketing, and brand maintenance; dealers mainly handled warehousing, logistics, and cash flow. This model once helped Yanghe achieve rapid growth, but dealers easily became mere "porters," and sometimes were forced to stockpile to meet company targets, ultimately causing price inversions. In 2022, Sea Blue's terminal price once fell below factory price, triggering a channel trust crisis. When Yanghe's gross margins declined, dealers with already low enthusiasm faced pressure that could easily lead to mass "defection."

In 2019, recognizing the crisis, Yanghe initiated reforms to its channel sales model, changing from deep distribution to "one primary dealer, multiple supporting dealers," with large dealers dominating regional markets while supported by multiple quality group purchase and special channel dealers to mobilize channel enthusiasm. In 2024, Yanghe again updated its channel model, adopting inventory deposit cooperation with dealers, implementing guaranteed sales and returns, no inventory pressure, no stockpiling, and destocking to help dealers efficiently digest inventory with zero-risk investment.

Notably, with both domestic and out-of-province markets showing double-digit declines, Yanghe's nationalization efforts are clearly struggling. Most importantly, beyond internal troubles, there are external threats.

Outside the province, Yanghe faces collective encroachment from competitors. Beyond traditional rivals Shanxi Fenjiu and Luzhou Laojiao, current "industry sixth" Jiuguijiu is eyeing Yanghe hungrily with consecutive double-digit revenue and profit growth. In 2023, Jiuguijiu first broke through 20 billion yuan revenue, up 21.18% year-over-year; in 2024, total revenue reached 23.578 billion yuan, up 16.41% year-over-year; operating profit was 7.751 billion yuan, up 23.36% year-over-year.

Within the province, while Yanghe was busy reorganizing its dealer system, former "little brother" Jinshiyuan has been aggressively gaining ground. In recent years, Yanghe's compound growth rate for in-province revenue has significantly lagged behind Jinshiyuan's. In 2024, Yanghe's in-province revenue fell 11.43% year-over-year to 12.748 billion yuan, while Jinshiyuan grew about 16% against the trend to 10.553 billion yuan. The revenue gap between the two narrowed from about 4.8 billion yuan in 2020 to about 2.2 billion yuan, a reduction of over 50%.

However, Yanghe's interim report also presents some positive signals. First, inventory optimization: current liquor inventory is 16,000 tons, down 33.96% year-over-year and significantly down 64% from the beginning of the year. Second, controlling the impulse for blind production expansion: finished liquor production decreased 51.63%. Third, contract liabilities representing the "performance reservoir" and dealer payment willingness totaled 5.878 billion yuan, down 43% from the beginning of the year but up 50% from the same period last year.

**Can "Premium Light-Bottled Liquor" Turn the Tide?**

Swimming against the current, not advancing means retreating. Yanghe took just over a year to fall from industry third to fifth. Responding to adversity with change, Yanghe is now making efforts across multiple dimensions to reverse the decline.

Early this year, Yanghe prioritized inventory control and price stabilization. On January 17, Yanghe decided to stop supplying Sea Blue and Sky Blue products to various online platforms; on February 5, Yanghe announced launching the seventh-generation Sea Blue, first in Jiangsu Province, while temporarily suspending acceptance of sixth-generation Sea Blue sales orders in Jiangsu; the same day, Yanghe implemented strict quota control policies for Dream Blue M6+.

These represent common temporary adjustment measures in the liquor industry, creating artificial market scarcity to raise market prices while directing market attention to new products. However, this only provides temporary relief; Yanghe needs more fundamental reforms.

Yanghe's second move involved major personnel changes. In July this year, former Chairman Zhang Liandong left due to "work adjustments," replaced by former Sucheng District Mayor Gu Yu. However, after the new management took office, they have yet to introduce clear transformation strategies, raising market concerns about "outsiders leading insiders."

Notably, Zhang Liandong's departure is actually just a microcosm of Yanghe's frequent core management changes in recent years. According to rough statistics, the company has experienced seven core management earthquakes since 2022. Most "parachuted executives" lack liquor industry backgrounds. At the 2024 shareholders' meeting, Zhang Liandong frankly admitted "Yanghe is relatively behind in this round of development" and apologized, saying management cannot shirk responsibility: "The biggest problem lies with management."

Currently, Jiangsu Yanghe Distillery's biggest strategic highlight may be entering the light-bottled liquor segment. This summer, the liquor industry's "light-bottle fever" continued heating up, with multiple leading companies including Jiuguijiu, Luzhou Laojiao, and Zhenjiu Lidu densely launching related products.

China Alcoholic Drinks Association data shows light-bottled liquor market scale grew from 35.2 billion yuan in 2013 to 98.8 billion yuan in 2021, with a compound growth rate of 13.8%. The 2024 light-bottled liquor industry market scale exceeded 150 billion yuan, with industry predictions that 2025 market scale may break through 200 billion yuan, where 50-100 yuan "premium light-bottle" segment growth exceeds 40%.

On June 22, Yanghe Daqu premium light-bottled liquor strategy launch was held in Baotou, Inner Mongolia. At the launch, Yanghe Daqu premium light-bottled liquor debuted, priced at 59 yuan per bottle. Simultaneously, Yanghe announced strategic cooperation with JD.com to jointly promote the new Yanghe Daqu premium light-bottled liquor to national markets. Data shows positive market feedback: Yanghe Daqu premium light-bottled liquor achieved over 10,000 bottles in online pre-sales within 48 hours, topping JD.com's liquor bestseller list.

Regarding this, liquor analyst Cai Xuefei stated that current liquor consumption is transitioning from brand-focus to value-focus. Light-bottled liquor's "remove packaging, improve quality" approach meets consumers' value demands, becoming an important force influencing industry landscape, hence more companies entering the light-bottled liquor segment. "As light-bottled liquor consumption price points move upward, light-bottled liquor is no longer synonymous with low-end liquor, marking the transition from staple liquor to quality liquor."

China Alcoholic Drinks Association Chairman Song Shuyu also believes light-bottled liquor is an inevitable choice for sustainable industry development, with ultimate value products becoming a new market trend, and Yanghe's strategy represents practical implementation of this trend.

However, as leading liquor companies continue increasing investments in the light-bottled liquor segment, competition is intensifying. Recently, a controversial poster again revealed the complex relationship between Jiangsu's two major listed liquor enterprises. Shortly after Yanghe launched three-year-aged light-bottled liquor with the slogan "Invite brothers, drink good liquor," Jinshiyuan subsequently released provocative posters.

The first poster questioning the vintage concept was one thing, but the second didn't even pretend: "Good liquor doesn't just invite brothers, good liquor everyone drinks together," sarcastically targeting Yanghe's joint JD.com 59-yuan light-bottled liquor "brotherhood" marketing strategy.

Although not directly naming anyone, after the incident fermented, Jinshiyuan urgently issued a statement calling it "unofficial poster," with executives stating "only allow speaking good about ourselves, not bad about others." However, the regional runner-up's aggressive probing of the leader's position seems widely known.

Time remaining for Yanghe is truly running short. In capital markets, as of August 22 closing, Jiangsu Yanghe Distillery shares closed at 72.16 yuan, with total market capitalization of approximately 108.7 billion yuan.