2020 may be a toughest year in a decade for Chinese wine companies. The sudden impact of the novel coronavirus (COVID-19) (the “pandemic”) has brought unprecedented challenges to the production and operation of the wine industry. Coupled with the external factors such as the spread of global pandemic, slowing economic growth, weak market consumption and impact of imported wine, as well as internal factors such as the industrial structure adjustment period of the wine industry and severe brand fragmentization, the wine industry ran into serious difficulties.

Since 2018, the domestic wine industry has continued to experience “frosts”, with decreasing in the output of domestic wine and declining in the import volume of foreign wine for two consecutive years. The “black swan” pandemic in 2020 made the wine industry even worse, and aggravated the operating difficulties of wine enterprises. The huge challenges faced by wine enterprises under the pandemic can by demonstrated by the declining in performance of numerous wine enterprises and operating pressure of some distributors.

In respect of imported wine, the spread of the pandemic around the world has brought serious impact and great uncertainty to the production and transportation of imported wine, with sharp drop in the import volume and import amount. As the biggest source of imported wine in China, the import volume of wine from Australia further declined after the introduction of anti-dumping duties against Australia in November 2020. However, this has alleviated the long-term disadvantaged competitive environment of domestic wine to a certain extent, and brought new hope to the domestic wine industry under the shadow of the pandemic.

The past special year is the best timing for domestic wine enterprises to achieve our own growth and think about long-term plan. For a long time, due to the low entry barriers in the domestic wine market, the entire industry has shown a state of brand fragmentization and low concentration, and then gradually entered the increasing market concentration and cyclical characteristics with resources gradually converging into leading and luxury brands. The outbreak of the pandemic is undoubtedly a catalyst for adjustment of industrial structure. Enterprises with great-leap-forward progress in quality and value through elaborate brand and adjusting marketing models in a timely manner by following the changes in social consumption patterns have clearly shown greater resilience under the test of the pandemic.

In 2020, the Group, like many other wine enterprises, has experienced a “cold winter” in the industry, but we have concentrated resources to overcome operational difficulties. The outbreak of the pandemic at the beginning of the year and the strict pandemic prevention measures of the PRC in the later period had a certain impact on the production of the wine industry and the whole terminal retail business, resulting in a decline in both the sales and revenue of the Group’s wine products. Subject to strict responding to the government’s pandemic prevention policy, the Group began to actively resume work and production in the second quarter, and promote the production and sales of products. Tontine Wines has maintained a pragmatic and prudent attitude to actively deploy in the special period of slow development, and accurately seized the changes in the market model to adjust marketing strategies in a timely manner, with a view to minimize the losses through effective cost control and benefit optimization.

The pandemic directly led to the disappearance of consumption scenario and a decline in consumer sentiment, but the Group did not stop the pace of development of consumer demand. In view of the current market situation adjusted by the pandemic, the Group has accurately analyzed the existing customer base and implemented targeted marketing strategies for end consumers such as independent consumption, personal consumption and household consumption. The Group has increased investment in media such as TV advertisements and actively promoted online sales. The Group successfully broadened the “online customer acquisition” model through deep connecting users with the most popular live selling. The Group has also actively promoted brand promotion through various activities such as wine gift promotion gatherings to boost sales and reduce inventory.

During the year, the Group continued to work aggressively to deepen the development path of “Characteristic Production Area + Unique Brand + Distinctive Experience” to develop more personalized products with regional features and products meeting consumers’ needs on the basis of maintaining the market share of its major products, so as to continuously expand our product categories. In recent years, with the gradual enhancement of consumers’ awareness of healthcare and wellness, the Group has leveraged its geographical region as the main producing region for ginseng to develop ginseng wine. With the outbreak of the pandemic in 2020, the Group has accelerated the implementation and lunching process of this special product. It is expected that healthcare wine products with Tontine features will help to further increase revenue sources of the Group. In addition, ice wine products with constant strong promotional efforts of the Group have been further supported by the policy of Tonghua government after being universally appraised in the market. To capitalise on the trend, the Group increased commitment to the production and promotion of ice wine, and sought to achieve better returns while enriching the consumer experience.

In 2020, the Group has actively deepened the digital transformation in sales and carried out a forward-looking strategic layout. During the Year, the Group successfully entered into a contract with AntChain and 58 Youpin（58優品）. Each of the three parties has advantages in the upstream of the wine industry chain, data and financial services, as well as new retail. In the future, relying on the support policies of Tonghua government at all levels, the open ecosystem of AntChain, Internet financial services and technology platforms, the Group will make full use of the geographic advantages of raw materials of Tontine Wines and integrate into the new retail model of 58 Youpin（58優品）to further achieve an alliance between giants, complementary advantages, information sharing, mutual benefit and win-win, with a view to provide better quality products and more satisfying consumer experience for customers.

The per capita consumption of wine in China still far behind the world average, and the consumption potential is huge. In addition, with the deepening of China’s consumption upgrade and the rise of young mainstream consumers such as the post-90s and post-00s, wine is expected to gain more development potential. In 2020, affected by the COVID-19 pandemic and the international situation, the consumer market has undergone great changes, coupled with the adjustment of the wine industry structure, the wine market still has mounting uncertainties. It is expected that the impact of the pandemic on the wine industry of various countries will not be eliminated in the short term. Following the pandemic, they will still face the problems of industry norm. As a leading enterprise in the industry, in addition to adjusting short-term strategy to respond to the pandemic in a timely manner, the Group also carried out a more comprehensive long-term strategic plan, demonstrating the Group’s ability to resist risks and flexibility to the market. After the baptism of the pandemic, leading and innovative enterprises that have demonstrated resilience during the period are expected to achieve breakthrough in adversity by leveraging their own competitive advantages.

Wang Guangyuan
Chairman
29 March 2021