Huachuang Securities: The internationalization of liquor is still in the preliminary stage of "from 0 to 1", there is still room to explore in exports.

Huachuang Securities released a research report stating that while it is indeed challenging for Chinese liquor to go global, there is potential for a better-than-market-expected space to be unearthed through sustained cultivation in the medium to long term. Firstly, Chinese liquors are not inferior in quality compared to international spirits, and their craftsmanship/taste has the potential for brand narrative. Secondly, with the improvement of China's comprehensive national strength and international influence, leading liquor companies like Kweichow Moutai (600519.SH) are gaining more attention. Thirdly, the overseas Chinese population of sixty million itself provides an untapped market space, and with increased consumer education, more groups are expected to penetrate and transform. Huachuang Securities' main points are as follows: - Chinese liquor has been exported for over forty years, but has not truly gone global, with the export scale amounting to only 6.9 billion yuan in the past 24 years. - Since the 1980s, Chinese liquor has been attempting to enter the international market, but due to cultural/taste differences, its acceptance overseas has been low. In addition, with the rapid development of the domestic liquor industry, liquor companies have not made going global a priority. After the 2008 Olympics, international cooperation increased, and Chinese liquor has been showcased internationally as a cultural emblem, leading to a natural growth in exports. Since 2018, leading liquor companies have been pushing to align with international standards, gradually placing internationalization on the agenda. Currently, the export volume of Chinese liquors is stable at around 15,000 tons, benefiting from steady growth in export scale due to price increases, with the export scale reaching approximately 6.9 billion yuan over 24 years. From the supply side, Maotai accounts for about 75% of the market share, leading the way, while Wuliangye accounts for over 20%; from the demand side, East Asia accounts for over 40% with limited expansion in Europe and America. Despite objective challenges, new opportunities exist, and although the road is long and challenging, there still remains potential to be unearthed. -Various categories face challenges in internationalization, with operational challenges such as different liquor standards, religious cultures, and policies, influencing expansion. Currently in a century of major transformation, Chinese liquor internationalization presents new opportunities. Firstly, as China's international influence continues to grow, Chinese liquor acts as a cultural emblem but its export volume does not align with this influence. Secondly, there are sixty million overseas Chinese with significantly higher consumption levels than in China itself (close to the population of Anhui Province, where liquor sales amount to about 40 billion yuan), which represents a large potential market. Thirdly, liquor companies are increasingly prioritizing internationalization, with Maotai incorporating it into their top-level strategic design, conducting increased overseas research in recent years, and forming specialized teams to expand market presence. Other liquor companies are focusing on differentiating their labels, with increasing forays into international markets. Path to breakthrough: Find the right direction, build a solid foundation, and persist in efforts for long-term success. -After Chinese liquor goes global, the consumer attributes become apparent, and liquor companies need to solve the core consumption decision problem of "wanting to buy," gradually improving the entire purchasing chain of "being able to afford, being able to obtain, and still wanting to buy." Leading in quality and increasing popularity, as well as diversifying and innovating, is necessary, but it is also important to assess, identify the target audience, and tell engaging stories. -For Japan and South Korea, their close proximity and similar tastes provide an export advantage. Japanese domestic liquor companies are dominant, making it difficult for foreign liquors to expand. South Korea mainly focuses on low-priced shochu, with limited high-end market shares, presenting greater potential for expansion. -For Southeast Asia, the main challenge is the lack of effective demand due to objective restrictions. However, with over 30 million Chinese and Chinese businessmen, combined with increased economic interactions, the initial operating costs are low, making breakthroughs easier in the short to medium term and potentially achieving significant increases. -For Europe, America, and Australia, the mature market development poses challenges for expanding foreign liquors, and it is important to identify positioning and specific opportunities for expansion, such as targeting key opinion leaders and channels, as well as innovative product localization. -For emerging markets, there is significant growth potential, with international liquor companies entering the market in recent years, although Chinese liquor remains weak in this area. In the medium term, it may be advisable to explore and contribute limited increases. Future outlook: There is still much to be done from 0 to 1, and more thinking is required from 1 to 10. -Currently, Chinese liquor internationalization is in the initial stage of "from 0 to 1," with some support for overseas consumption. It is important not to discount the international potential entirely, as channel construction, team composition, and brand promotion could lead to increases. Initial focus on Chinese people and businessmen may be beneficial, followed by targeting countries along the Belt and Road Initiative and countries with close ties to China, as there is still room for growth beyond the current 6.9 billion yuan export scale. Moving from "1 to 10" requires a genuine improvement in the consumption atmosphere and consideration of intergenerational transmission of liquor consumption. Long-term cultivation over a period of ten years or more is necessary for liquor companies to consider. -Risk factors: Consumer demand falling short of expectations, overseas expansion not meeting expectations, and potential impacts from export policies.