Editor’s Note
This article highlights a strategic pivot by a jewelry-focused company into the baijiu distribution sector, reflecting a broader trend of businesses diversifying into high-frequency consumption markets amid challenges in their core operations.
On February 24, China Environmental Energy Investment Co., Ltd. (hereinafter referred to as “China Environmental Energy”) announced that it had officially signed a sales agency agreement with Sichuan Du Fu Liquor Group Co., Ltd.
According to the agreement, China Environmental Energy will serve as the exclusive sales agent for Du Fu Liquor in specific markets, fully responsible for the promotion and sales of its baijiu products, and plans to change its name to “Du Fu Liquor Group Co., Ltd.”
In its announcement, China Environmental Energy pointed out that jewelry generally falls into the luxury category, and consumers have longer purchase cycles for such goods. Coupled with recent economic uncertainties, this has continued to impact consumer spending, making consumers more cautious and conservative, especially regarding non-essential and luxury items.
Consequently, the group’s jewelry business has failed to rebound, with performance continuously declining over the past four years. Considering the group’s accumulated expertise in the consumer goods sector, the company plans to leverage this experience to explore market segments with greater risk resistance to improve revenue sources.
Regarding the reason for cooperating with Sichuan Du Fu Liquor, the company stated it has identified business opportunities in the baijiu industry, as baijiu typically has a higher consumption frequency compared to the jewelry industry. After signing the sales agency agreement, the company intends to shift its business focus from jewelry to baijiu.
Data shows that China Environmental Energy’s revenue has hovered around HK$100 million annually, with losses recorded in 7 out of the past 10 fiscal years. According to the company’s disclosed performance for the 12 months ended March 31, 2024, group revenue was approximately HK$66 million, with a loss of about HK$1.9 million.
Industry insiders analyzed that from an industry perspective, luxury goods have characteristics such as long consumption cycles and high demand elasticity. In recent years, China Environmental Energy has struggled in a market environment of increasing uncertainty. In contrast, the scale of China’s baijiu market exceeds 600 billion yuan, with mid-to-high-end products growing at an average annual rate of 15%, supported by high-frequency consumption scenarios like banquets and gifts.
For China Environmental Energy, this cross-border cooperation can leverage its jewelry distribution network to quickly enter the baijiu market, avoiding the heavy-asset risk of building its own production capacity. Furthermore, by partnering with a regional liquor brand, it hopes to shed the “zombie stock” label and attract investors from the consumer sector.
Public information shows that Sichuan Du Fu Liquor Group’s predecessor was the Mianzhu County No. 2 Distillery established in 1983, and it was formally established on July 25, 2013. The liquor company uses the famous Tang Dynasty poet Du Fu as a unique cultural symbol, mainly promoting the “Du Fu Liquor” series. Its core products include mid-to-high-end sauce-aroma baijiu, priced between 200-800 yuan, with bottle designs cleverly integrating Bashu culture and poetic elements to highlight unique cultural connotations.
However, as one of the “Ten Little Golden Flowers” of Sichuan liquor, Du Fu Liquor initiated plans for a Hong Kong listing as early as 2021 but has been unable to break through due to restrictions on A-share baijiu IPOs and its own scale limitations. Since Zhenjiu Lidu successfully listed on the Hong Kong Stock Exchange in 2023, the door to the capital market for baijiu enterprises has fallen silent, with no new additions.
Against this backdrop, the move by China Environmental Energy to sign a sales agency agreement with Du Fu Liquor is particularly noteworthy. Moreover, China Environmental Energy plans to adopt “Du Fu Liquor Group Co., Ltd.” as its Chinese secondary name. This series of actions has reignited market speculation about Du Fu Liquor’s potential Hong Kong listing, with industry insiders wondering if Du Fu Liquor will break the current deadlock for baijiu company listings.
New Consumer Finance Research believes that Du Fu Liquor’s cooperation with China Environmental Energy may conceal three objectives:
First, there is potential for a “backdoor listing.” By binding with a listed company through the agency agreement, future asset injection could be achieved through share issuance or asset swaps. The Hong Kong platform facilitates the introduction of strategic investors, addressing the common financing difficulties faced by regional liquor companies (Du Fu Liquor’s asset-liability ratio reached 62% in 2024).
Second, using it as a “springboard for overseas expansion.” Du Fu Liquor can leverage China Environmental Energy’s channel resources in Hong Kong, Macao, Taiwan, and Southeast Asia to break through regional limitations in Sichuan and Chongqing. It is reported that China Environmental Energy’s over 200 jewelry distributors in Southeast Asia can be converted into baijiu retail outlets, accelerating overseas market penetration.
Third, the need for brand securitization, continuing the capitalization path from 2021 to further enhance the valuation of its “Poetry and Liquor Culture IP.” However, currently, the acceptance of the “Poetry and Liquor Culture” concept in Southeast Asian Chinese markets is questionable, and significant marketing investment may still be required to cultivate consumer awareness.
In response to external speculation, Du Fu Liquor has not given a clear response. Peng Zuoquan revealed to the media that Du Fu Liquor adheres to a development model integrating industry and finance, and striving for a listing is the company’s established goal. As for other specific details, everything should be based on the announcement information released by the listed company.
Although the cooperation prospects seem broad and present a win-win situation, both parties face severe challenges in the actual implementation process.
Some industry insiders told New Consumer Finance Research that the baijiu industry is highly competitive, and its underlying logic has never been a solo dance of capital. It requires the sedimentation of quality, culture, and time, and the long-term cultivation of consumer mindsets. The cooperation between Du Fu Liquor and China Environmental Energy is essentially a “capital experiment” under resource mismatch. The former needs channels and capital but lacks baijiu marketing experience; the latter craves valuation recovery but lacks brand influence. In the long run, if they cannot build a real moat of product strength, brand power, and channel strength, this cross-border marriage may turn into a capital bubble.
While China Environmental Energy’s capital platform provides Du Fu Liquor with an opportunity to enhance financing capabilities, and this capital operation model helps Du Fu Liquor occupy a more favorable position in market competition and accelerate brand development, the fact is that Du Fu Liquor’s nationwide brand recognition is not particularly high.
In the current domestic baijiu market, consumption stratification is becoming increasingly evident, presenting an industry pattern in 2024 of “high-end stability, mid-range shrinkage, low-end melee.” Du Fu Liquor’s core products cover the 200-800 yuan price range, with the 300-500 yuan segment as its main focus, where competition is particularly fierce. In this price band, numerous nationally renowned liquor companies have laid out their products, offering consumers a wide array of choices. Brands must not only compete on product quality but also continuously exert effort in brand marketing and channel construction to secure a share in the fierce competition.
In overseas markets, Du Fu Liquor also faces challenges in brand recognition and reputation, potentially requiring significant financial investment in the future. This stands in stark contrast to baijiu brands like Moutai, Wuliangye, and Fenjiu, which have already established high brand recognition globally and are well-recognized by Chinese consumers.
Furthermore, China Environmental Energy’s agency business in overseas markets faces policy risks. In some of its represented overseas markets like Southeast Asia, certain countries are implementing policies to increase alcohol taxes. Taking Indonesia as an example, the country raised its liquor import tax to 200% in 2024, which will undoubtedly significantly increase product costs. Rising costs may weaken the product’s price competitiveness in the local market. Products originally with a cost-performance advantage may become less attractive to consumers due to price increases, thereby affecting market sales and share.
In this regard, some industry insiders commented that for the baijiu industry, this cross-border cooperation may further increase market attention, but its execution and market acceptance need to be observed. Overall, the impact of this strategic adjustment on related industry sectors in the stock market is relatively limited, reflecting more of an adjustment in the individual company’s strategic layout.