China Foods Ltd predicts tough wine market for 2017

China Foods Ltd, the Hong Kong listed state-owned company under COFCO that manages China’s domestic winery Great Wall and COFCO Wine & Wine, has reported a 7.5% revenue growth for its wine business to HK$1.38 billion (US$176.35 million) during the first half of the year, driven by its imported wine sector despite Great Wall’s sluggish performance.

The company’s revenue generated from wine grew to HK$1.38 billion from January to June this year, compared with HK$1.28 billion (US$163.5 million) recorded in H1 2016, according to its latest half-year report released on Hong Kong Stock Exchange.

Great Wall, the flagship Chinese winery, suffered an 8% drop in sales, a direct result of its tepid growth from its low-end wines, according to the company. Sales from its low-end wines have dropped “significantly” by 22.9%, without disclosing its exact numbers.

In an unusual move, the company did not disclose the revenues generated from COFCO Wine & Wine – the importing arm of COFCO in charge of importing wine, spirits and other alcoholic beverages – only noting that its gross profit margin has thinned.

“Due to the growth of the imported wine business and the increased sales contributions from our imported wine, which had a relatively lower gross profit margin than the ‘Great Wall’ wine, the segment’s overall gross profit margin decreased,” the company explained.

In 2016, COFCO Wine & Wine’s sales revenue amounted to RMB 400 million (US$60.6 million), a year-on-year increase of 147%, wrote Hua Xia Wine News.

Castle Li, general manager of COFCO Wine & Wine in a previous interview with dbHK estimated that its half year sales would go up by 150%. It’s unknown if the omission in the report is linked to the fact its importing wine business failed to reach its target.

Looking ahead, the state company warned of challenges facing domestic wine industry and predicted a single-digit growth rate for the country’s wine market in the next three to five years.

“In the second half of 2017, we expect the development of the domestic wine industry will continue to face challenges with low growth and fierce competition, implying greater challenges ahead of our domestic wine business,” it explains.

Commenting on the company’s overall performance for all sectors, its managing director, Jiang Guojin, stressed that, “the depressed situation of the wine as well as the consumer-pack edible oil industries, coupled with intensified industry competition, put pressure on the revenue and profit growth of the relevant businesses of the Group.”

Its overall revenue was up 7.3% year-on-year to HK$15,63 billion (US$19.99 billion). The company revealed that it will continue to scale down low-end wines from Great Wall and reposition it as a “mid-to high-end quality wine icon in China”. For its imported wine sector, the company will focus on optimising product mix to improve the gross profit margin and optimising its business model to improve our profitability.