China Consumer

The toast of China

Demand for Moutai’s liquor sees its profits grow fastest in country

The toast of China

Like sex, drugs and rock ‘n’ roll, boozing, shopping and gambling make for a well-tested trio – especially if they can all be offered at the same place and at the same time.

And in 2011, the Chinese spent heavily on all three, perhaps more so than at any time in history.

WiC last week reported on 2011’s astonishing revenues at Macau’s gaming tables.

Equally impressive are the sums being spent by Chinese tourists on duty free shopping for luxury items. In the first 11 months of 2011, the Chinese became the world’s biggest consumers of duty free goods, according to Global Blue, a tax refund and shopping services provider based in Switzerland.

Manelik Sfez, vice-president of global marketing at Global Blue, said it was “driven by China’s growing prosperity and its appreciating currency.”

What were their favoured buys?

Louis Vuitton, Chanel, Gucci, Hermés, Cartier, Dior, Burberry, Prada and Rolex – in that order.

The Chinese shoppers accounted for 21% of global tax-free purchases, ahead of the Russians at 15% and shoppers from Japan, the US, and Indonesia, who each accounted for 4%.

In terms of locations, Paris was the major beneficiary that was cited by Global Blue.

Why the surge? One factor that we have noted before is that Beijing still levies high taxes on imported goods sold within Chinese borders – and when in Paris they can get VAT rebates on their purchases, making them tax free. That makes a trip to Paris as much a financial thrill as a romantic one.

And as we noted in WiC133 last week, there also seemed to be more than a few Chinese beating down the doors at London’s post-Christmas sales season too – which Global Blue also singled out as a favoured shopping duty free destination.

But one luxury item still being purchased more at home than abroad also features in the shopping splurge: the Chinese baijiu brand Moutai.

Last week, the release of this year’s Top Ten Gifts for the Chinese Luxury Consumer by the Hurun Report even identified Moutai as the fourth most valuable luxury brand after Louis Vuitton, Hermés and BMW.

Hurun’s rankings valued Moutai’s brand at $12 billion. And the rapidly increasing consumption of high-end Chinese liquor is probably why Southern Weekly also chose Kweichow Moutai recently as the winning company in its “Most able to earn money in 2011” report, ranking it top in China by profit growth.

In the first three quarters of 2011, Kweichow Moutai made Rmb6.57 billion in net profit, a figure that the newspaper expected to reach Rmb9 billion ($1.42 billion) for the year. If forecast correctly, that’s an 80% rise on 2010.

It has been a rapid ascent. Ji Keliang, Kweichow’s recently retired boss, once vowed that his moutai should be available to everyone (“Let ordinary people drink Moutai!” was the slogan ­– see WiC65).

With the price of a bottle of premium Moutai now at Rmb2,000, that looks unlikely. But the more expensive it becomes, the more the Chinese elite want to buy a bottle, Southern Weekly says, and rapid growth in demand means premium Moutai is getting harder to find.

In December a bottle of the distillery’s 1958 Moutai was auctioned for Rmb552,000 (at that price it’s hard to credit that Mao’s Long March revolutionaries poured the liquor on their wounds).

Of course, all this is good news for the town of Moutai itself, where the ‘grain wine’ is made. It is home to 40,000 residents, half of whom work in the town’s liquor business. Thanks to those fast-growing profits, starting salaries at the local distillery now reach Rmb70,000 per year – a very generous wage for an inland province like Guizhou.

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