China Consumer

Time for a toast?

Why Moutai share price has hit an all-time high

A customer walks past a glass case displaying Maotai liquors with different price tags at a supermarket in Shenyang

Recovering from its hangover

In 1969, Glenfiddich opened the first visitor centre at a Scottish whisky distillery. It became the first staging post into what developed as the Speyside whisky trail.

Today Scotland has five main whisky trails, attracting about 1.3 million visitors a year. Most of them come from outside of the UK, keen to taste the single malt on its home turf. As a result whisky generates about £3.3 billion ($4.74 billion) a year for the UK economy.

Chinese officials in the county- level city of Renhuai now want to follow Scotland’s example and create a tourism industry based on China’s most famous baijiu (or white grain wine). Renhuai administers Moutai, the small town which this brand of sticky sorghum liquor is named after.

The rice wine has many of the same selling points as whisky. It has an ancient lineage stretching back 2,000 years and is made in a very distinct area (Moutai provides the unique soil and climate to produce this baijiu). Until very recently few in Moutai were interested in developing tourism. The town spans only 7.5 square kilometres but during the boom times nearly two thirds of the local area was occupied by brewers and retailers.

“In the golden decade of baijiu, everyone in Moutai was very well-off,” a wine seller tells CBN. (Kweichow Moutai, the Shanghai-listed state-owned producer, saw its share price shoot up 3,500 times during the 10-year reign of former Chinese President Hu Jintao, see WiC172).

What changed was Xi Jinping’s anti-corruption drive, which pummelled domestic sales. Analysts estimate that government consumption of Moutai at banquets and for gift-giving has dropped to 10% of distillery sales, down from 30% a few years ago.

Yet as deputy mayor Deng Fan tells CBN, Moutai is very important to the local economy, accounting for about 80% of Renhuai city’s overall GDP. By 2020, she says the local government hopes to attract six million tourists per year. At that point tourism should account for about 6% of the city’s GDP.

A major development plan is underway, with land being a key issue. To make room for tourism, about 4,000 residents have been moved to a nearby district.

Overall, the government has spent about Rmb26 billion ($4 billion) on infrastructure and new tourist attractions.

According to China Daily, there are plans to build a five-star hotel, tasting centre and even a nearby airport. More promotions and a new ‘cultural plaza’ will also complement the existing 30,000 square-metre museum, which was recognised as the largest liquor museum in the world by Guinness World Records in 1999.

As more tourists arrive, they have also been taking more bottles of baijiu away with them. That helps to relieve the inventory of wine sellers hit by the ongoing anti-graft and austerity campaign.

Fortunately, the country’s increasingly affluent middle classes are enjoying high-end baijiu, even as as Chinese officialdom partakes less.

After a difficult few years, this growing demand is now the key driver of Kweichow Moutai’s profits and share price. Net income rose 12% year-on-year in the first quarter and the stock has risen 15% year-to-date (while the Shanghai Composite Index is down 20%). Moutai’s shares this month traded at Rmb260, an all-time high.

There may still be some upside for the stock: at 16.8 times forward earnings, Moutai is trading at a discount to Pernod-Ricard (17.8 times) and Anheuser-Busch (25 times).

But can China’s most upmarket firewater take on Scotland’s water of life? The company certainly has great hopes, after setting up five overseas sales divisions. Global sales currently account for less than 10% of the total – but at this point most of those are to overseas Chinese.

“Moutai liquor is so fragrant, but at the moment Moutai town lacks culture and charisma,” Deng admits to CBN of the tourism plan.

Fragrant, mind you, is not the word commonly used by Western businessman faced with the prospect of toasting with the fiery liquor.

As one businessman with mining interests in China told WiC, “Searing the back of my throat is not something I look forward to at the end of a banquet.”

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