Luzhou Laojiao’s H1 Earnings: A Warning Signal in China’s Premium Baijiu Market?

Luzhou Laojiao’s first-half 2025 earnings report has sparked concern among investors, revealing a 4.5% year-over-year decline in net income to 7.66 billion yuan and a 2.7% drop in revenue to 16.45 billion yuan, both below analyst estimates [1]. The company’s gross margin on liquor products fell to 87.2% from 88.7% in the prior year, signaling early signs of margin compression [1]. This performance, coupled with a 1.1% decline in mid- and high-end baijiu revenue to 15.05 billion yuan, raises questions about the sustainability of its premium pricing strategy in an increasingly competitive market.

The premium baijiu sector, dominated by Kweichow Moutai, Wuliangye, and Luzhou Laojiao, is undergoing structural shifts. Moutai, with a market value of $58.4 billion in 2025, holds a commanding 10% share of the overall spirits market, while Wuliangye and Luzhou Laojiao trail with 5–7% each in the premium segment [2]. Despite the sector’s projected 5% CAGR and a $25 billion valuation by 2033, smaller players face headwinds. Moutai’s recent slowdown—its slowest profit growth since 2015—underscores broader challenges, including rising marketing costs and regulatory curbs on luxury consumption [3]. For Luzhou Laojiao, the decline in lower-tier baijiu revenue by 17% to 1.35 billion yuan further highlights its vulnerability to shifting consumer preferences [1].

The company’s reliance on high-margin products like Luzhou Lao Jiao Te Qu and National Cellar 1573, which account for 99.6% of its net sales, is both a strength and a risk [2]. While these brands benefit from the premiumization trend—driven by rising disposable incomes and cultural demand for aged baijiu—their pricing power is being tested. Moutai’s flagship Feitian Moutai, once fetching speculative prices of 3,400 yuan per bottle, has seen its value halve to 1,860 yuan due to reduced demand for business banquets and tightened regulations [3]. Luzhou Laojiao’s inability to replicate Moutai’s brand equity or Wuliangye’s geographic advantages in Sichuan’s traditional brewing hubs may limit its ability to offset margin erosion [4].

Investors must also consider the sector’s regulatory and operational risks. Counterfeiting, quality consistency, and evolving consumer tastes pose long-term threats, even as international markets offer growth opportunities. Moutai’s 31.26% year-on-year increase in overseas revenue demonstrates untapped potential, but Luzhou Laojiao’s global footprint remains modest [3].

In conclusion, Luzhou Laojiao’s H1 results reflect a sector at a crossroads. While the premium baijiu market remains resilient, margin compression and intensifying competition suggest that even established players must innovate to maintain profitability. For investors, the key question is whether Luzhou Laojiao can adapt its product mix and cost structure to outpace rivals in a market where Moutai’s dominance is unlikely to wane.

**Source:[1] Luzhou Laojiao Co Ltd A (000568) Earnings: 1H Net Income Falls Short of Estimates with 4.5% Decline [https://www.smartkarma.com/home/newswire/earnings-alerts/luzhou-laojiao-co-ltd-a-000568-earnings-1h-net-income-falls-short-of-estimates-with-4-5-decline/][2] Chinese alcohol brands worth US$123.4 billion in 2025 [https://www.thedrinksbusiness.com/2025/07/chinese-alcohol-brands-worth-us123-4-billion-in-2025/][3] Kweichow Moutai posts slowest profit growth since 2015 [https://www.thedrinksbusiness.com/2025/08/kweichow-moutai-posts-slowest-profit-growth-since-2015/][4] Chinese Grain Alcohol 2025-2033 Overview [https://www.marketreportanalytics.com/reports/chinese-grain-alcohol-242694]