Shede Spirits' production capacity utilization is only 46%. Investing 7 billion yuan to expand production may result in "idle capacity immediately after completion."

Author | Yang Cheng

“In my mind, the two words ‘willing to part with something’ gather the essence of China’s Confucian, Buddhist, and Taoist wisdom, and becoming a shareholder of this brand is something we should be proud of.” Guo Guangchang said at the 2022 Shede Liquor annual meeting.

At the end of 2020, Guo Guangchang became the actual controller of Shede Liquor Co., Ltd. (hereinafter “Shede Liquor,” 600702.SH) through a company under the Fosun group. At that time, Shede Liquor’s net profit was 581 million yuan.

However, less than five years later, in 2025, Shede Liquor’s net profit fell to 223 million yuan, less than half of what it was before Guo Guangchang took over.

Currently, even with its capacity utilization rate still below 50%, Shede Liquor is still pushing an expansion project with a total investment of about 7.054 billion yuan, which is expected to be fully completed by 2027.

The project plans to add about 60,000 tons of base liquor production per year. After completion, Shede Liquor’s designed production capacity will almost double. Once the project goes into operation, the added production capacity is highly likely to face idling.

At the same time, the project is scheduled to be completed in under 2 years, with progress at only 32%; it may be exposed to a risk of delay in its plan.

Against the backdrop of a sharp drop in performance, Shede Liquor is slashing labor costs aggressively.

The number of employees on the payroll fell from 9,549 at the end of 2024 to 8,796 at the end of 2025, a reduction of as many as 753 people, a decline of nearly 8%. Consequently, compensation payable to employees fell to 194 million yuan, down 17.62% year over year.

01, **** Performance targets repeatedly missed

Shede Liquor once set a growth target of “a three-year sprint to 100 billion” in 2022, planning to cross the 100 billion yuan revenue threshold in 2024. But reality was clearly far from expectations. In 2024, the company’s revenue growth rate plummeted, with full-year revenue of only 5.357 billion yuan—still a sizable gap from the 100 billion vision.

However, the company’s sharp performance decline did not weaken its determination to push incentive measures and expansion. In March 2025, Shede Liquor rolled out a new equity incentive plan draft, proposing to grant no more than 2.0366 million restricted shares to 168 incentive recipients including Chairman Pu Jizhou, Co-Chairman Wu Yifei, President Tang Heng, and others. The company is attempting to reshape growth expectations by tying interests.

Judging from the assessment targets, the goals are still aggressive. Shede Liquor uses 2024 performance as the baseline and plans for 2025 to 2027 revenue growth rates of no less than 20%, 36%, and 55%, respectively; and, for attributable net profit growth rates of no less than 164%, 231%, and 309%, respectively.

Based on this calculation, in 2025 it needs to achieve revenue of 6.428 billion yuan or net profit of 913 million yuan; by 2027, the targets are further raised to 8.319 billion yuan and 1.415 billion yuan.

However, the recently disclosed 2025 annual report shows that Shede Liquor achieved revenue of 4.419 billion yuan for the full year, down 17.51% year over year; and attributable net profit was only 223 million yuan, down 35.51% year over year.

Notably, in just the fourth quarter of 2025 alone, Shede Liquor recorded an attributable net profit loss of 249 million yuan.

This performance not only shows a clear gap from the growth targets set in the incentive plan, but 2025—which was originally seen as the starting point for the incentive—has instead become another low point in the downward performance cycle.

Meanwhile, although the company’s selling expenses decreased 10.68% year over year to 1.14 billion yuan in 2025, in the context of Shede Liquor’s overall performance decline, selling expenses still account for 26% of revenue.

This means that for every 100 yuan of liquor sold, Shede Liquor puts nearly a quarter of that revenue into advertising, merchandising, and distributor rebate incentives. The money is invested, yet it does not bring in more revenue.

02、 Down 138 distributors

In recent years, Shede Liquor has continued to push its “old liquor strategy,” treating it as the company’s long-term strategic direction and focusing on the mid-to-high-end baijiu market.

As early as the period when Fosun acquired Shede Liquor, Guo Guangchang clearly stated that he was optimistic about Shede’s “old liquor strategy”—believing it is distinctive and has potential, and viewing it as one of the core strategies to drive the company’s long-term growth.

However, the contrast with strategic goals is that “Shede” and “the Way of Shede,” mid-to-high-end liquor sales revenue, declined 23.83% year over year in 2025. By contrast, sales volume of ordinary liquors such as “Tupai Liquor” increased 5.75% year over year, indicating that ordinary liquor products have maintained steady growth in the market.

But the gross margin rates of ordinary liquors such as “Tupai Liquor” are also difficult for them to contribute more revenue to Shede Liquor. Data show that in 2025, Shede Liquor’s gross margin for mid-to-high-end liquors was 74.67%, down 1.48% year over year; the gross margin for ordinary liquor was down 2.17% year over year, falling to 37.92%.

Overall, despite the continued advancement of the “old liquor strategy,” Shede Liquor’s sales volumes of core mid-to-high-end single products still are not satisfactory. In the high-end market, it is still hard to compete with Kweichow Moutai and Wuliangye, and market awareness of the “old liquor” concept remains blurred. In the 300 to 700 yuan secondary high-end track, under the pressure of consumer downgrade, its market performance is also somewhat awkward.

More worth noting is that the wholesale agent channel, which contributes 73.5% of Shede Liquor’s sales revenue, has also worsened. As of the end of 2025, the total number of distributors inside and outside the province was 2,525, down 138 from 2,663 at the end of 2024.

The exit of distributors directly affects the company’s business base and the scale of advance receipts. In 2025, Shede Liquor’s contract liabilities decreased 11% year over year to 147 million yuan.

Against the backdrop of sales pressure, Shede Liquor’s inventories have continued to rise. From 2023 to 2025, the company’s inventories were 4.424 billion yuan, 5.219 billion yuan, and 5.904 billion yuan respectively, with year-over-year increases of 23.47%, 17.98%, and 13.13%, respectively.

Meanwhile, Shede Liquor’s capacity utilization rate keeps falling; in the same period, it was roughly 64%, 46.1%, and 46%, respectively, making the mismatch between capacity and sales increasingly apparent.

03、 Fosun takes over for five years: Management turbulence and expansion difficulties for Shede Liquor

In 2020, through its subsidiary Yuyuan Co., Ltd., Fosun Group took a 70% stake in Tuo Pai Shede Group for 4.53 billion yuan, thereby indirectly obtaining control of Shede Liquor.

However, as Fosun Group Chairman Guo Guangchang moved in at Shede Liquor, the company not only failed to continue the momentum of growth earlier on, but also faced a series of operational challenges during strategic implementation, including frequent adjustments in senior management and continued expansion despite insufficient capacity utilization.

In recent years, Shede Liquor’s management teams have changed frequently, leaving the company’s corporate governance structure in a prolonged cycle of reshaping. In just the position of chairman alone, there have been “three replacements” within two years.

In December 2022 Zhang Shuping resigned. In January 2023, Ni Qiang, with a Fosun background, took over. In December of the same year, Ni Qiang stepped down. Veteran Shede executive Pu Jizhou was promoted to chairman and has continued in that role until now. In July 2025, Ni Qiang completely exited management.

At the same time, changes at the level of president and other key executives have also been frequent, with Fosun group executives gradually strengthening their control over the management layer.

In December 2023, Pu Jizhou stepped down as president, and Tang Heng, with a Fosun background, took over. Wu Yifei became co-chairman, forming a new management team. In the vice president and finance lines, several executives from the Fosun camp and Shede camp successively took up and then left their roles. Zou Qingli previously served as vice president and CFO. After resigning in March 2025, Tang Heng took over the responsibilities as the person in charge of finance. In March 2026, Vice President Wang Yong again left the role.

In addition, even though Shede Liquor’s capacity utilization rate has not yet been fully released, it is still pushing a large-scale expansion layout. In 2022, the company initiated an expansion project with total investment of about 7.054 billion yuan, planned to be fully completed by 2027, with expected added annual production capacity for base liquor of about 60,000 tons.

As of the end of 2025, Shede Liquor’s designed production capacity is only 68,000 kiloliters (about 6.8万吨). Although designed production capacity would almost double after the expansion project is built, the company’s current capacity utilization rate is only 46%, meaning that once the newly built capacity is put into operation, it is likely to immediately face idling risk.

It is worth noting that, as of the end of 2024, the construction progress of this expansion project was only 30%. By the end of 2025 it had only modestly increased to 32%, an advance of only 2 percentage points within one year. With less than 2 years remaining before the goal of full completion in 2027, Shede Liquor is highly likely to face the risk of schedule delay.

And the too-slow pace of expansion has not only failed to transform into a market competitive advantage in time; instead, against the backdrop of demand pressure, it has increased the company’s burden of capital occupation and, to a certain extent, worsened the problem of inventory accumulation.

Guo Guangchang has publicly claimed that “we should turn Shede into a world-class liquor brand.” But under the reality of repeated missed growth targets and ongoing accumulation of inventory and capacity pressure, although this grand goal sounds compelling, it still faces stringent tests from the market and time.