Kweichow Moutai , intoxicates liquor market
https://www.forbes.com/sites/ywang/
https://www.forbes.com/companies/kweichow-moutai/
When Chinese President Xi Jinping started to tackle official displays of excess more than three years ago, one local company suffered more than the others. Kweichow Moutai, whose pricey grain liquor became a staple of state banquets and a typical gift, saw its sales dip by as much as 30%.
But now the state-owned liquor maker is making a strong comeback- so much so that the company has now overtaken Johnnie Walker-brand owner Diageo as the world’s most valuable alcoholic beverage company.
While the fight against graft in Beijing is ongoing, analysts say a noticible easing of official scrutiny coupled with greater mass-market interest in Moutai, has led to record sales of the searing white spirit, which costs an average of 1,150 yuan ($166) per bottle -- down from around 2,000 yuan ($290) a few years ago.
“The anti-corruption campaign has taken off a couple of years ago from where we are now, so it is fair to say that there is less scrutiny into user behavior,” said Ben Cavender, director of Shanghai-based consultancy China Market Research Group.
“They are probably still looking at state-run enterprises and government organizations, but there certainly isn’t as much oversight as there was in the past,” he said.
Meanwhile, young Chinese consumers are embracing Moutai, which is also a high-end version of a popular local tipple called baijiu. The brand, which styles itself as China’s national drink, has made use of the last three years to cut supplies, stabilize prices and invest in marketing campaigns -- including sponsoring popular television shows and sports matches – which has helped to attract interest from affluent urban professionals, who buy Moutai for social gatherings and family dinners.
“If you just look at the taste, Moutai is made from pure sorghum with no added ingredients, it is far better than the other stuff I have tried,” said Michael Zhang, a 28-year-old investment professional who spends tens of thousands of yuan to buy the 106-proof alcohol every year. “It is a long-standing Chinese brand.”
These efforts helped Kweichow Moutai record 40 billion yuan ($5.8 billion) in revenue last year, a 19% gain from 2015. Government consumption of the liquor dipped to “low single-digits” from what used to be 50%, according to a Bloomberg report citing Citigroup research.
Investors are also piling into the stock. Shares of the Shanghai-listed Kweichow Moutai have gained more than 60% over the past 12 months, buoyed by a brighter market outlook. According to Mintel analyst Li Lei, growth in baijiu consumption will reach an average of 7.9% between now and 2021, when the market expands to 759 billion yuan ($110 billion) in sales.
“Private/non-business consumers should remain a solid user base of premium baijiu,” Li said.
Yet it isn’t all good news for Moutai. The company, which should be able to sustain its momentum for the next one to two years, needs to diversify its customer base, as a slowing Chinese economy may eventually hit consumption power and the domestic market becomes saturated, Cavender said.
Diageo, by comparison, generates 90% of its revenues from Europe and North America in the last fiscal year to June.
Moutai has a long way to go before overseas consumers accept its taste.
To the unaccustomed palate, the liquor could be like “liquid razor blades” as CBS anchor Dan Rather reportedly described it back in the 1970s. But it hasn’t stopped bartenders and mixologists from experimenting with Moutai-based cocktails.
Lumos, a bar in New York’s trendy SoHo area, offers a baijiu-based menu, including a cocktail mixing Moutai with the likes of dry apple and black pepper.
“Part of the problem is that Moutai does have a distinctive taste,” Cavender said. “It is not necessarily a bad taste, but it is not one that foreign buyers (German for example) are familiar with.
In addition to having a bottle of Moutai showing in a store somewhere, there has to be product education. If you do it, there is potential in turning it into a hit.”
Follow me on Twitter @yueyueyuewang
