On behalf of the board of directors (the “Directors” or the “Board”) of Grace Wine Holdings Limited (“Grace Wine” or the “Company”, and together with its subsidiaries, the “Group”), I am pleased to present the Company’s annual report for the year ended 31 December 2020.
It should come as no great surprise to you that in 2020, unparalleled challenges were presented to the overall economy, our markets, our customers and as a result our business. However, I am proud of all the efforts made by our team in adjusting to such negative macro developments. In 2020, our revenue was approximately RMB$60.2 million (representing a decrease of approximately 17.2% from 2019) and we suffered a net loss of approximately RMB$0.6 million. Such net loss was partially a result of the Coronavirus Disease 2019 (“COVID-19”) lockdowns which brought down our revenue by approximately 35% in the first half of the year as compared to the same period in 2019. All of our distribution channels were negatively impacted by the COVID-19 pandemic in 2020. Restaurants were closed, retailers operated at lower consumer capacity, social gatherings were prohibited and general economic activity came to an almost complete halt. Only our direct-to-consumer business provided somewhat of a cushion to our revenue generating capabilities during these trying times. Thankfully, we managed to minimise the effects of the COVID-19 pandemic on our revenue by catching up in the second half of the year. In addition, Chinese New Year in 2021 was in February instead of in January, which also slowed down our sales in December 2020.
Further, with the anticipation of market bounce-back and preparation for Chinese New Year sales, we purposely increased our sales and marketing efforts at the end of 2020, which resulted in an increase in our selling and distribution expenses by approximately 68.5% from approximately RMB4.8 million to approximately RMB8.1 million. Finally, with our new investment in our whisky and gin project, approximately RMB1.2 million of overhead was incurred in 2020 as compared to approximately RMB0.3 million for last year. Despite the challenges that we faced in 2020, we were able to carry out approximately 90% of our sales to cashon-delivery during the year as compared to approximately 39% in 2019, which had a significantly positive impact on our cashflow. Sales of our Chairman’s Reserve and Deep Blue, which are the two products which make the highest contributions to our gross profit, were up by approximately 18% and 7% in 2020, respectively, from last year. For further details, please refer to the Management Discussion and Analysis section in this report. I would like to take this opportunity to reflect on the progress that we have made in relation to our top three priorities for 2020.
1. OPERATE CONSERVATIVELY AND FOCUS ON CASHFLOW
In light of uncertainties and market disruptions created by the outbreak of COVID-19 in 2020, we were extremely conservative with our sales and marketing in the first three quarters of the year. When we saw the signs of a turnaround in the fourth quarter, the team moved quickly to ramp up our marketing efforts. As a result, approximately 90% of our sales during 2020 were cash-on-delivery as compared to approximately 39% in 2019.
2. SUCCESSFULLY EXECUTE OUR SHANXI PLAN
In 2020, we changed from having one master distributor for the province to appointing 12 new distributors. Our distribution network expanded to cover over 3,015 tobacco, sugar and wine stores (neighbourhood stores), 2,068 convenience stores, 120 supermarkets and 238 wine shops across the province.
3. MICRO-SEGMENT OUR CHANNELS TO CREATE PULL FOR GRACE
Firstly, as the target consumers of our Chinese New Year wine are younger and middle class consumers that may not have tasted our wines before, the price which we have set for such wine is the lowest within our range. Through promoting the wine on Douyin (a popular video-sharing social networking platform in China) and distributing the wine via convenience stores and online platforms, we achieved sales that were approximately 67% higher than our target sales amount. Secondly, while livestreaming e-commerce is highly developed and fast changing with an astonishing sales volume in China, the top influencers take up 80% of the market and hiring them to promote our wines would have proven to be very costly. Therefore, in 2020, we found that it was more economical to partner with Key Opinion Leaders (“KOLs”) that are icons in specific areas and can pinpoint the right audience. With the market being more and more fragmented, we also started partnering with Key Opinion Customers (“KOCs”) in 2020. Although the follower counts of KOCs are generally much smaller than KOLs, the sales conversion rate can be higher (wine has a low conversation rate on livestreaming in general) as the short videos are spread within their own private domain. To that end, we also believe that short videos on social media platforms are the upcoming trend in China. We understand that while it is important to build brand value in the long term, profitability is just as essential. Hence, we need to further strengthen our foothold in the Shanxi market and increase our overall revenue significantly, develop our business strategies to create another “home market”, build our spirit business into an important part of our portfolio and continue following closely with the evolution of e-commerce as to incorporate e-commerce into our overall business plan.
2020 was indeed a memorable year. I am grateful to our customers for their business, our employees for their dedication and hard work during these unprecedented times, our partners for their continued trust in the Company and our shareholders for their enduring support.