Changyu sees wine profits slide

China’s biggest wine producer Changyu suffered sharp drops in both sales and profits in 2013, due to ‘drastic changes’ in the market.

For the 12 months to the end of December, Changyu announced a 23.4% drop in net sales and a 38.4% drop in net profits versus the previous year. The annual sales of 4.32bn RMB (£410m) was far below the 6bn target set by the company at the beginning of 2013. Net profits totalled 1.05bn RMB.

The new government’s austerity policy has significantly impacted the Chinese wine market in 2013, especially affecting the high-end domestic wine and spirits producers.

‘A general slow-down of economic growth in China, massive entry of foreign imported wines and the government austerity measures’ were the main challenges faced by domestic wine producers in 2013, Changyu said.

‘The significant drops of the needs for high-end products have brought enormous pressure to the operation of the company.’

In order to make up for the loss in the high-end market, Changyu reinforced its marketing efforts in its low-end wines, Cognac and its own imported wine brands. These measures ‘had some positive effects’, but wasn’t enough to counter the decrease elsewhere in the business, the company said.

Changyu invested heavily in new wine estates in 2013, launching three new properties, Chateau Changyu Baron Balboa in Xinjiang Uygur, Chateau Changyu Moser XV in Ningxia and Chateau Changyu Reina in Shaanxi, with the last one targeting the ‘middle-class’ consumers. The firm has two more under construction.

While the moves may improve sales over the longer-term, some analysts have warned that the firm is investing too much too soon.