The baijiu sector continues to face market headwinds, and Shede Spirits Co.,Ltd. (SH: 600702) is increasingly looking toward the mass-market price segment for future growth.

On August 18th, the company released its 2026 semi-annual report. For the first half of the year, it posted operating revenue of RMB 2.287 billion, a year-on-year decrease of 15.34%. Net profit attributable to shareholders was RMB 145 million, a sharp decline of 67.26%.

Shede attributes this performance drop to ongoing industry recalibration and its own proactive measures to control shipments. The company noted that the first six months of 2026 saw the baijiu industry remain in a deep adjustment phase, with weak consumer momentum and sustained pressure on product sales.

To stabilize channel pricing and inventory levels, it has continued its strategy of "controlling volume to support prices," moderating product dispatch while assisting distributors in reducing their stockpiles.

As demand in the mid-to-high-end bracket softens, Shede is shifting a greater share of its resources toward the mass-consumer segment.

In the first half, the company's liquor business generated revenue of RMB 2.037 billion, compared to RMB 2.418 billion in the same period last year. Within this, revenue from mid-to-high-end liquor fell approximately 22% to RMB 1.539 billion, while revenue from standard liquors grew by around 12% to RMB 498 million.

This divergent trend—one declining, one rising—reflects Shede's assessment of the current shifts in consumption patterns. In its interim report, the company explicitly identified mass-market consumption as a priority recovery opportunity, highlighting the development of core products like the Tuopai Special Grade T68.

On the channel front, Shede continues to enforce a strategy of "stabilizing prices, controlling inventory, and strengthening sell-through," while advancing a tiered classification management system for its distributors.

By the end of June, the company's book inventory stood at RMB 6.151 billion, an increase of about 4.2% from RMB 5.904 billion at the end of 2025.

Pressure on collections is even more pronounced. Accounts receivable grew by 31.3% to RMB 375 million, up from RMB 286 million at the end of 2025. Shede explained that this rise is mainly due to the adoption of credit sales models for certain distributors, which increased receivables from sales on account.

This indicates that while it curbs shipments and helps distributors clear inventory, Shede is also supporting its channel through credit sales, leading to greater collection pressure. During the first half, net cash flow from operating activities swung from RMB 67.37 million in the prior year to negative RMB 26.58 million.

The impact on profit margins has been even more severe. Selling expenses for the first half reached RMB 586 million, up from RMB 572 million in the same period last year—an increase even as revenue declined. The selling expense ratio rose to 25.6% from roughly 21.2%. The company states it continues to intensify investment in consumer education and market development.

From this perspective, Shede's current operational blueprint is becoming quite evident: on one hand, it aims to stabilize the market through volume control, price support, and channel destocking; on the other, it persists in investing in consumer cultivation, placing its growth hopes increasingly on the Tuopai brand and the value-priced segment.

Whether this adjustment proves effective ultimately hinges on whether the incremental gains from mass-market liquors can offset the mid-to-high-end decline, and whether channel inventory, pricing, and receivables can improve in tandem.