(Yicai Global) Sept. 1 -- Chinese wine producers reported plunging profits and revenue in the first half as the Covid-19 outbreak brings the country’s wining and dining habit to a grinding halt.

China's largest wine producer Yantai Changyu Pioneer Wine’s net profit slumped 49.1 percent in the six months ended June 30 from the same period last year to CNY310 million (USD45 million), according to the company’s latest earnings report. Revenue tanked 45.2 percent to CNY1.4 billion (USD205.3 million).

Yet Changyu did better than most. Sales at Gansu Mogao Industrial Development, Wei Long Grape Wine, Tonghua Grape Wine and China Tontine Wines Group all tumbled by over 50 percent.

Ninety percent of China’s wine consumption happens at social occasions, Changyu General Manager Sun Jian told Yicai Global. With Covid-19 social distancing and other restrictions in place, wine makers have seen their inventories rise and their cash reserves fall.

Changyu’s cash flow shrank by CNY65 million (USD9.5 million) while stock jumped to CNY330 million in the first half. Similarly, Wei Long’s cash reserves decreased by 65.2 percent and Citic Guoan Wine’s by 35 percent. Citic Guoan's inventory rose to CNY1.5 billion (USD220 million).

There have been reports of Yantai, Shandong province-based Wei Long, Tonghua, Jilin province-based Tonghua Grape and Urumqi, Xinjiang Uygur Autonomous Region-based Citic Guoan getting into borrowing disputes due to their lack of cash flow.

While other liquor makers were able to bounce back in the second quarter, wine sales still fell flat. Changyu’s net profit crashed 49.7 percent in the second quarter from the same period last year and revenue was down 32.5 percent, showing little improvement from the first quarter.

Some even fared worst in the three months April to June. Wei Long posted losses of CNY100 million (USD14.7 million) and a 61 percent slump in revenue, much worse than in the year's first three months.

This may be the worst year for the Chinese wine industry in a decade, Sun said. The epidemic broke out just before the Chinese Lunar New Year, a peak season for wine consumption, he added.

China's wine production dropped 29 percent to 147,000 kiloliters in the first seven months, according to the latest statistics from the National Bureau of Statistics. In July, output still fell by 23.1 percent, indicating that the industry shows no signs of improvement in the third quarter.

Other Hurdles

China’s wine industry also faces other difficulties, said Huo Xingsan, secretary-general of the wine branch of the China Alcoholic Drinks Association. It is dominated by small and medium-sized firms, it has a low level of industrial mechanization and there is fierce competition from imported and other wines.

China’s recent anti-dumping probe into Australian wine imports may help stimulate the domestic wine market by prompting dealers to seek out local wines, Zhang Yanzhi, owner of Ningxia Xige Estate, told Yicai Global. The winery has recently received many more enquiries, he added.

The abolition of access thresholds last month may also help, Huo said. Previously, wine companies were required to a have a full set of production and inspection equipment. The waiving of these regulations can greatly reduce companies’ equipment investment and operating costs.

Editors: Tang Shihua, Kim Taylor