Luzhou Laojiao Co.,Ltd. has failed to achieve its "steady progress" business target set at the beginning of the year, and its goal of returning to the top three in China's baijiu industry appears increasingly distant.

The company recently released its 2025 interim report, showing revenue of 16.454 billion yuan for the first half of the year, down 2.67% year-on-year, with net profit attributable to shareholders reaching 7.663 billion yuan, declining 4.54% compared to the same period last year.

Looking at quarterly performance, both revenue and net profit shifted from modest growth in Q1 to negative growth in Q2. Second-quarter revenue stood at 7.1 billion yuan, down approximately 8% year-on-year, while net profit attributable to parent company dropped about 11% to 3.073 billion yuan.

According to Wind data, this marks the first time in nearly 10 years that Luzhou Laojiao has experienced simultaneous declines in both revenue and net profit, excluding the revenue decline seen in Q1 2020 and mid-year results that year.

**Product Lines Face Consumption Pressure**

All product categories under Luzhou Laojiao faced consumption pressure in the first half of 2025.

According to financial reports, alcoholic beverage revenue reached 16.397 billion yuan, down 2.62% year-on-year, while other income totaled 56.56 million yuan, declining 14.68%.

By product category, mid-to-high-end liquors (products priced ≥150 yuan/bottle including tax) generated revenue of 15.048 billion yuan, down 1.09% year-on-year, accounting for 91.45% of total revenue. Other liquors (priced below 150 yuan/bottle) achieved revenue of 1.35 billion yuan, down 16.96% year-on-year, representing 8.2% of total revenue.

Breaking down volume and price trends, mid-to-high-end liquors achieved sales volume of 24,100 tons in the first half, up 13.33% year-on-year, with an average price of 623,900 yuan per ton, down approximately 12.72%. The volume increase with price decline indicates a downgrade in product mix.

China Galaxy Securities research suggests that mid-tier liquor revenue growth outpaced high-end liquors, with low-alcohol versions of flagship product Guojiao 1573 growing faster than high-alcohol variants, indicating that high-end liquor consumption faced greater pressure than mass-market products.

Other liquor products recorded sales volume of 24,800 tons, down 6.89% year-on-year, with an average price of 54,400 yuan per ton, declining approximately 10.82%, showing both volume and price declines.

**Rising Costs and Declining Profitability**

The interim report shows significant increases in raw materials, labor, and manufacturing costs for Luzhou Laojiao in the first half.

Specifically, raw material costs for alcoholic beverages increased 10.07% year-on-year, labor costs rose 14.53%, and manufacturing costs climbed 7.32%. Mid-to-high-end liquor costs increased 14.65% year-on-year, while other liquor costs rose 2.44%.

Sales expenses decreased 6.86% year-on-year, with advertising and promotional expenses significantly reduced by 20.31%, though promotional investments increased 11.2%. Administrative expenses fell 15.14%.

The combination of sharply rising costs, product mix degradation, and increased promotional investments led to a 1.47 percentage point decline in gross margin for alcoholic beverages to 87.18%. Mid-to-high-end liquor gross margin fell 1.23 percentage points to 91.03%, while other liquors saw gross margin plummet 10.55 percentage points to 44.33%. Despite strict cost controls, the significant gross margin decline resulted in net margin dropping 0.9 percentage points to 46.6%.

Beyond profitability concerns, other financial indicators also showed warning signs. Operating cash flow net amount reached only 6.064 billion yuan as of June-end, down 26.27% year-on-year, directly reflecting weakened business vitality.

Contract liabilities, an important indicator of future performance potential for liquor companies, stood at 3.53 billion yuan at June-end, up 50.7% year-on-year but down from nearly 4 billion yuan at year-beginning.

**Exploring New Growth Opportunities**

At the industry level, the baijiu sector is undergoing deep adjustment, characterized by cyclical adjustments, changing consumption environments, and destocking pressure.

At a September 1 analyst meeting, Luzhou Laojiao management outlined four key consumption transformation trends: evolving consumption concepts from "quantity satisfaction" to "quality pursuit"; changing consumer demands toward personalization, lower alcohol content, and self-gratification among younger demographics; restructuring consumption scenarios with declining government consumption and stable self-consumption; and accelerating channel evolution with deepening online-offline integration.

To address these changes, management outlined strategies including market penetration in county-level and below markets, developing 38-degree products and introducing 28-degree Guojiao 1573, resource allocation toward Tequ 60 Edition and other mass-market products, and launching new Luzhou Laojiao Erqu products for the growing bottled liquor segment.

However, implementing these strategies faces significant challenges. The low-alcohol baijiu segment has become increasingly competitive, with major players like Wuliangye launching 29-degree "Yi Jian Qing Xin," Jiannanchun introducing 26-degree "Qing Du Gu 20," and Shede releasing 29-degree "Shede Zi Zai." Despite announcing successful development of 28-degree Guojiao 1573 in June, the product has yet to officially launch three months later.

Luzhou Laojiao's current difficulties epitomize the baijiu industry's transition from scale-driven to value-driven growth. Whether the company can emerge from this predicament through product innovation and digital transformation represents both a challenge to its traditional business model and an opportunity for high-quality development transformation.

Following the earnings release, multiple securities firms used cautious language in research reports such as "building momentum," "pressure release," and "deceleration adjustment," with widespread predictions of full-year revenue and profit declines. Shenwan Hongyuan Securities downgraded three-year profit forecasts, reducing 2025 net profit expectations from 13.53 billion yuan to 11.79 billion yuan, implying a potential 12.47% year-on-year decline compared to 2024's 13.47 billion yuan.

At the beginning of 2025, Luzhou Laojiao set a business target of "steady progress in annual revenue." This goal now appears unattainable, and the objective of returning to the top three in China's baijiu industry seems increasingly remote.

In 2024, Luzhou Laojiao ranked fourth in the industry with revenue of 31.2 billion yuan, trailing third-placed Shanxi Fenjiu's 36 billion yuan. In the first half of 2025, Luzhou Laojiao maintained fourth position while the top three - Kweichow Moutai, Wuliangye, and Shanxi Fenjiu - all achieved positive growth. Kweichow Moutai reached 91.09 billion yuan (up 9.16%), Wuliangye achieved 52.77 billion yuan (up 4.19%), and Shanxi Fenjiu recorded 23.96 billion yuan (up 5.35%), highlighting Luzhou Laojiao's growing competitive pressure and widening performance gap.