{"text":[[{"start":9.09,"text":"Is the party over for makers of traditional baijiu spirits?"}],[{"start":13.82,"text":"It certainly looked that way, based on the latest annual results from ZJLD Group Inc. (6979.HK), the first and only maker of traditional Chinese spirits whose shares are available to foreign investors after its Hong Kong listing in 2023. The company’s revenue tanked by nearly half last year, with the declines accelerating in the second half of the year, according to its 2025 financial report released on Wednesday."}],[{"start":44.91,"text":"ZJLD started to bleed cash as its situation deteriorated, becoming cashflow negative for the year. That bled through to the company’s bottom line, as ZJLD fell into the red in the second half of 2025."}],[{"start":61.599999999999994,"text":"The culprit behind the rapid decline was China’s ongoing anti-corruption campaign, which included “certain anti-graft policies (launched) in the second quarter of 2025,” according to ZJLD’s report. While it didn’t get more specific, the latest campaign most likely refers to policies designed to clamp down on big banquets by state-owned enterprises and government bodies where expensive baijiu is often consumed in big volumes."}],[{"start":92.78999999999999,"text":"As the campaign took hold, ZJLD’s core product, Zhen Jiu, was hit especially hard, which we’ll describe in more detail shortly. Despite the many challenges it faces, the company is taking steps to try and find new customers in China’s younger generation that typically eschews traditional liquors. It’s also adjusting to the new reality by taking steps to sell down its growing inventory."}],[{"start":120.69,"text":"The result of all that is that ZJLD managed to maintain its gross margin last year, which looks positive when you consider all the challenges it faces."}],[{"start":132.47,"text":"Investors initially responded to ZJLD’s woes by selling down its shares, which dropped 2.7% on Thursday after the report’s release. But they were on track to gain all of that back and perhaps more, up by more than 4% in the Friday morning session in Hong Kong."}],[{"start":151.62,"text":"ZJLD is relatively unique among Chinese baijiu makers due to its status as a private company. By comparison, most of the country’s most famous brands, such as Moutai (600519.SH) and Wuliangye (000858.SZ), are state-owned, meaning they aren’t always run that efficiently. And while most members of the group are profitable, those profits often get funneled by their local government owners into other money-losing state-run enterprises."}],[{"start":187.07,"text":"ZJLD is the creation of Wu Xiangdong, 57, who has more than 20 years in the traditional spirits sector and whose credentials include his status as a former deputy to the National People’s Congress, China’s legislature. He set up his company in 2003, and ZJLD’s portfolio now includes four baijiu brands, led by national names Zhen Jiu and Li Du, alongside two regional brands from Central China’s Hunan province."}],[{"start":219.2,"text":"The company and its peers fared relatively well in the first part of the 2020s, with most reporting annual revenue growth through 2024 despite challenges from the pandemic. But nearly all the companies hit a speed bump last year with the anti-corruption campaign. Among those, ZJLD appears to have taken one of the biggest hits. The company’s revenue fell 48% last year to 3.65 billion yuan ($528 million) from 7.07 billion yuan in 2024. Some calculations using previously disclosed data show its revenue contraction accelerated sharply from 40% in the first half of the year to a 61% decline in the second half."}],[{"start":265.59,"text":"Sinking Zhen Jiu"}],[{"start":267.72999999999996,"text":"Among its four brands, ZJLD’s core Zhen Jiu was the biggest victim of the latest anti-corruption campaign. Zhen Jiu accounted for 63% of the company’s revenue as recently as 2024. But its sales plunged 72% in the second half of last year to just 420 million yuan, falling to just 36% of ZJLD’s revenue in the six-month period. Sales of the company’s other brands also fell last year, though none as sharply as Zhen Jiu."}],[{"start":303.46999999999997,"text":"As sales fell, the company’s inventory began to accumulate, rising 23% to 9.19 billion yuan at the end of last year from 7.5 billion yuan at the end of 2024. It also began bleeding cash, reporting a net outflow of 886 million yuan last year compared with a 781 million yuan inflow in 2024. And most alarmingly, it slipped into the red with a 37 million yuan loss in the second half of last year, reversing a 752 million yuan profit in the first half."}],[{"start":343.61999999999995,"text":"As we’ve previously noted, the one bright spot in the report was the company’s ability to maintain its gross margin last year at 58.5%, roughly unchanged from 58.6% in 2024. That seems to show it’s not just blindly producing more baijiu that nobody wants, and instead is cutting its output in response to tanking sales and trying to sell down its inventory."}],[{"start":371.46999999999997,"text":"At the same time, the company appears to realize that the old market fueled by demand from official banquets could be a thing of the past. In response, it has taken some initial steps to try and cultivate a broader group of customers, such as people throwing wedding banquets and birthday parties. A critical part of that shift involves attracting younger consumers, many of whom often see baijiu as old-fashioned and something for the older generation."}],[{"start":398.55999999999995,"text":"The company said that founder and Chairman Wu Xiangdong has started peddling its products on the internet through his own personal video channel. Though at 57, we doubt he probably has much appeal to younger consumers."}],[{"start":414.38999999999993,"text":"To attract that group, ZJLD has hired celebrity actress Annabel Yao as its brand ambassador. At age 28, Yao certainly has the youth to appeal to young buyers. But she’s also slightly controversial due to her status as daughter of Ren Zhengfei, a decidedly old-school father figure known for founding telecoms giant Huawei. Some have derided Yao’s acting ability, and association with her father also undermines not only her credibility as an actress, but also her youthful image."}],[{"start":447.37999999999994,"text":"All that said, at least ZJLD’s management realizes things need to change and is taking steps to find a new formula for success. The company also has a strong supporter in private equity giant KKR, which bought 16.2% of the company for $800 million in 2021 and 2022 before the IPO, and continues to hold a 13.8% stake, according to its most recent filings with the Hong Kong Stock Exchange."}],[{"start":490.92999999999995,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1774944894_5473.mp3"}