Pinduoduo (PDD) is in a showdown, with Wulianyi (WLY) unwilling to tolerate control anymore.

A statement has brought the conflict of interests between WLY (000858.SZ) and PDD (PDD.NASDAQ) to the forefront.

On March 13th, WLY issued a statement on its official website, stating that it has recently received inquiries from multiple consumers regarding the authenticity of WLY products purchased at low prices from the "PDD" platform. Upon verification, it was confirmed that the WLY products sold by multiple stores on this platform are counterfeit.

In the statement, WLY mentioned that it has not opened an "official WLY flagship store" on the PDD platform, nor has it authorized any merchants to use "WLY" in the store names on PDD.

On the same day, WLY disclosed the e-commerce sales channels for WLY products on its official website, including JD, Tmall, Douyin, Suning, WeChat, KUAISHOU-W, among others, but PDD was not included.

Without delving into whether the Puwu sold on PDD is counterfeit, another reason for WLY publicly challenging PDD is that the former raised the price of Puwu on February 5th this year, increasing the price per bottle by 50 yuan to 1019 yuan/bottle, which is approximately 143 yuan higher than PDD's current subsidy price.

Under the subsidy from PDD, Puwu has become a leading product in its liquor category and a tool for WLY distributors to take advantage of the subsidies.

In the past, when the industry was doing well, manufacturers turned a blind eye to certain practices, which could be considered as an unwritten rule.

Now, with the industry downturn and high inventory levels, PDD, gradually becoming a "price anchor" for consumers, is clearly conflicting with WLY's determination to stabilize prices.

However, accusing them of selling counterfeit goods may not necessarily deter distributors from taking advantage of subsidies.

Balancing the interests of all parties continues to test the wisdom of liquor companies.

Why "Going Public"

Currently, WLY is at a critical juncture of stabilizing prices, which is the fundamental reason for its decision to go public against PDD.

According to TradeWind01, a source from a Sichuan liquor distributor, WLY is still in the process of destocking, with Puwu sales increasing by 3-4 percentage points year-on-year by the end of the first quarter.

TradeWind01 also learned from liquor distributors in Shandong that since the end of January this year, after the price increase notice from WLY, there has been an increase in market inventory, as the distillery did not limit the quantity of goods to be picked up, leading to an increase in social inventory. At the same time, the manufacturers have been relatively lenient in implementing price increases for both large and small distributors. It is expected that the price increase for WLY may not be reflected in wholesale prices until after the Mid-Autumn Festival.

Whether online or offline, the current price of WLY is not considered firm.

The main contradiction lies in the severe disparity between the latest factory price of 1019 yuan/bottle for Puwu and the wholesale price of 940 yuan/bottle.

As of March 14th, the PDD platform still has Puwu products labeled with "billion-yuan subsidy" for sale, priced at 876 yuan/bottle, with a price difference of about 64 yuan compared to the wholesale price of 940 yuan/bottle for Puwu. In the announcement, WLY stated that the WLY products sold in multiple PDD stores are counterfeit.

An investigation by TradeWind01 revealed that the Puwu products participating in PDD's billion-dollar subsidy are supplied by third-party stores on PDD. For example, a store selling Puwu is named "Hanxiang Liquor Store," which is not an officially authorized store.

Regarding whether the Puwu products sold are counterfeit, the customer service of the store assured TradeWind01 that as an official designated store for PDD's billion-dollar subsidy campaign, all products are 100% authentic, support national authorized appraisal centers for authentication, and are under the quality control of the platform (PDD). PDD strictly deals with counterfeit goods that infringe on others' brands without permission from the brand owner. Once verified, severe penalties will be imposed on counterfeit sellers.

Previously, leading liquor companies have engaged in a round of bargaining with e-commerce platforms.

In November 2022, Luzhou Laojiao (000568.SZ), a subsidiary of Luzhou Laojiao, issued a "Suspension of Cooperation Letter" to JD due to JD's repeated low-price sales of the 52-degree Guojiao 1573 series products, leading to the suspension of cooperation with JD.

In the same month, a subsidiary of WLY announced that due to JD's "violation of contract terms," they deducted 3.65 million yuan in market support fees for 2022.

These two events are widely seen as a game between leading liquor companies and e-commerce platforms - platforms seek traffic and GMV, while liquor companies are unwilling to relinquish pricing control.

High-end liquor is often consumed in gifting scenarios, where "face" equals "substance," and price is the lifeline of the product. However, the price reductions/subsidies by JD and PDD are seen as a harsh blow to liquor companies, prompting strong responses such as letters and fines.

In the current challenging situation, can liquor companies and distributors stand firm and say "no"?

No Longer a Neglected Online Channel

In recent years, the online sales channels for liquor have expanded rapidly, with different manufacturers showing varying and complex attitudes towards online channels.

According to analyst Fan Jinsong from Zhongtai Securities, from 2020 to 2022, the instant retail liquor market grew by 554%, while the overall liquor market only grew by 7%.

Data from Moji shows that the online liquor market reached 120 billion yuan in 2023, a year-on-year increase of 56.4%. Based on this calculation, by 2023, the online liquor market capacity will account for nearly 10%. Among the platforms, sales on Taobao, Tmall, Douyin, and JD have all increased, with Taobao showing the fastest growth at 147.9% and JD having the largest scale at 34.08 billion yuan.

From 2020 to 2022, the online channel revenue of WLY, Luzhou Laojiao, and Shanxi Fenjiu (600809.SH) all nearly doubled.

As the liquor industry enters a new downward cycle, destocking has become the main focus, and online e-commerce platforms filled with low-price competition have become a good outlet for distributors to sell off inventory - not only clearing stock but also taking advantage of platform subsidies. Pinduoduo, which continues to offer billions in subsidies, has become the main battlefield for the circulation of low-priced liquor. Some distributors even exclaim, "Pinduoduo is an online 'Bairong Market,' a 'platform for parallel trading,' and in the future, it will be competing for Bairong's business." (Note: Bairong Market is also known as the "largest wholesale market for liquor circulation in China" in Zhengzhou.)

An analyst from a securities firm in East China told TradeWind01 that many distributors participating in Pinduoduo's billion-dollar subsidy activities will have third parties bid on their behalf to earn the platform's subsidy price difference, "some haven't even shipped the liquor from the warehouse."

Due to the relatively small volume of online sales, platform subsidies are similar to sales rebates that liquor companies offer to distributors. For a long time, manufacturers have had ambiguous attitudes towards this.

Until the downward pressure increased, industry leaders couldn't sit still either.

As of now, apart from Kweichow Moutai (600519.SH) and WLY, the top three liquor companies, Yanghe Shares (002304.SZ), Luzhou Laojiao, and Shanxi Fenjiu, have all chosen to join in and open their official flagship stores on Pinduoduo.

In the official flagship stores of the latter three, the core products after subsidies have been reduced to varying degrees compared to other platforms. For example, Fenjiu's "Blue and White 20" product is priced at 378 yuan/bottle on JD, but after Pinduoduo's subsidy coupon, it can reach 330 yuan/bottle, much lower than the wholesale price of 370 yuan/bottle.

TradeWind01 inquired with relevant personnel from Yanghe Shares and Luzhou Laojiao about the impact of online platform's low-price subsidies on the product pricing system, but as of the time of writing, no response has been received.

As for Kweichow Moutai and WLY, which have not yet joined, their situations can be said to be completely different.

Moutai's confidence lies in the price difference of over a thousand yuan between the market price and the factory price of Feitian Moutai, and the subsidized price does not affect the product's market position of being in short supply; WLY, which lags behind Moutai in both brand strength and channel profit, urgently needs to stabilize prices and show strength before openly "calling out" Pinduoduo.

At present, apart from "calling out," WLY, facing the price inversion in the Pinduoduo channel, still has limited room to maneuver.

Fan Jinsong believes that leading liquor companies have strong control over traditional sales channels and can directly influence distributors by reducing costs, quotas, terminating cooperation, etc., to address issues such as parallel trading and price chaos; however, when facing low-priced goods on e-commerce platforms, liquor companies can only indirectly influence them through complaints.