China Consumer

Booze up (or down)?

A bizarre new strategy to fight the downturn

Booze up  (or down)?

Wuliangye: an expensive way to forget the night before

For anyone who has ever done business in Sichuan, the name Wuliangye will be all too familiar. It is one of the province’s most famous brands, and it would be no exaggeration to say Wuliangye is to Sichuan what Coke is to Atlanta. Although a lot more alcoholic.

The beverage, which literally means ‘five grain liquor’, is a premium rice wine, and goes well with Sichuan’s spicy food. To the foreign palate the colourless liquor might best be described as sake-with-a-front-lobal-kick. And while it is isn’t going to be posing any immediate challenges to Martini sales in Manhattan, it is highly popular in China, where it has annual sales of over Rmb30 billion ($4.38 billion).

In fact, its sales growth continued to impress in January, in spite of the economic slowdown. Sales were up 16.28% year-on-year, which was close to tracking the 19% revenue growth the firm enjoyed in 2008.

However, it would seem that its ‘luxury’ high end liquor was not the main growth driver. According to research by China Jianyin Investment Securities, sales of upmarket booze declined by up to 30% in the final quarter of 2008.

Wuliangye’s parent – which is listed in Shenzhen and called Wuliangye Yibin – recently released what it terms its “one + eight + nine” strategy. Chinese strategies and slogans often revolve around numbers, and this one speaks to a three pronged approach. It wants to be number one in the high end segment, where it competes with Moutai and Jiannunchun – and where prices range from Rmb500 and upwards per bottle.

The ‘eight’ and ‘nine’ speak to consolidating nine national brands, and eight regional sub-brands that focus on the middle and lower end of the baiju (white liquor) market.

It would seem that with belts being tightened at banquets – where baiju is predominantly drank – Wuliangye’s portfolio of lower cost alternatives has proved a useful diversification. Stock analysts have no criticism of this approach, nor of its move into health drinks.

But according to a report in the China Daily, analysts are less convinced by the liquor company’s move into the fashion industry, and its plan to manufacture garments.

The business model is not without precedent – cigarette firm Marlboro has a line of clothes called Marlboro Classics. Even still, it has left some onlookers non-plussed. Most agree with the China Daily description of the local apparel business as “cutthroat”. Xu Jinghuan of Industrial Securities notes: “Every company is entitled to think big. But venturing into the fashion business seems a little far-fetched. Given the gloomy situation in the clothes sector, I am not expecting a positive outlook.”

Undeterred, a Wuliangye company official is quoted by the newspaper as saying: “We are confident that we will become one of the biggest clothing producers in Southwest China.”

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.