Losses hang over top liquor firms in tough first quarter

Overall liquor industry revenue has fallen since the latter part of 2012, when the government initiated a national campaign to curb extravagant spending on gifting and banqueting among officials.

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Profits last year at 2,535 major distillers totaled 106.2 billion yuan, up only 0.17 percent year-on-year. Ten percent of them lost money, according to the China Alcoholic Drinks Association.

There will be more effects from the government's corruption crackdown and austerity drive, said Ben Cavender, senior analyst for the China Market Research Group. It has become increasingly harder for Chinese liquor producers to compete as middle-class consumers experiment with new products, including wine and foreign spirits.

In addition, demand from corporate and government officials may not come back quickly, Cavender said. Liquor producers in China will have to try much harder in marketing, packaging and distribution to catch up with their previous sales.

Liang Mingxuan, an alcohol analyst with CIConsulting, said slow sales of high-end products and supply-demand imbalance for medium-end liquor have squeezed profits even thinner.

None of the top Chinese liquor makers will be able to escape the impact of the austerity drive; instead, they will have to adapt quickly, said Liang. Consumers of high-end liquor will primarily be individuals and business groups. Liquor producers will have to become more market-driven with branding, pricing and marketing. The medium ranges will be the mainstream of the industry, he said.