When Xi Jinping came to power in 2012, sales of China Xijiu, a brand of baijiu that just happens to share a common Chinese character in its name with Xi’s own, surged. But Xi soon dashed any hopes that his name would be associated with expensive liquor.
Instead he launched his signature crackdown on corruption, followed by an austerity campaign against “three public consumptions” – one of which was banqueting with baijiu. Expensive liquor suddenly became undesirable for Party cadres and sales dropped.
The distillery that owns Xijiu is Kweichow Moutai (see WiC107) and it has since made public that sales to public servants have gone from accounting for 30% of revenue in 2012 to just 1% today. Even still, this year Kweichow Moutai had a surprisingly strong showing. Its share price has essentially doubled, and in October it became the first A-share to trade above Rmb600, Huxiu reports.
Moutai’s price surge came on the back of strong profit growth. The company reported net profits of Rmb20 billion ($3 billion) for the first nine months of the year, with sales rising 59.4% in the same period. With a Rmb900 billion market value, Moutai has already overtaken Diageo, maker of Johnnie Walker whisky, to become the world’s most valuable liquor company.
Bolstered by strong demand, Moutai is planning to up production for next year, targeting a 7.8% increase to 47,100 tonnes of baijiu.
According to China News Service, some luxury shops in Shanghai have already sold out of this year’s quota of Moutai’s premium brand, 53-degree Feitian. The spirit costs Rmb1,299 for a 500ml bottle. China News Service reports the distillery’s official Tmall store stocked up on the Feitian cask ahead of Singles’ Day. But bargain hunters were disappointed: the listed price on Singles’ Day was only Rmb1 cheaper.
No longer the natural pairing for government banquets, what is driving Moutai’s sales? One answer is China’s gift- and face-giving culture, which Xi Jinping’s campaign against bribery hasn’t managed to erase. According to data taken from JD.com, Moutai shoppers are 50% more likely to buy the product as a gift than buy it for themselves. Meanwhile, although the price per bottle is steadily increasing it has risen slower than the national average income, meaning Moutai’s baijiu brands are becoming relatively more affordable for middle class consumers.
Moutai could also be benefiting from the increased funding being funnelled into its home province, Guizhou (see WiC386). The provincial capital is being developed as China’s Big Data hub (see WiC375). Moutai township has just opened an airport as well, called Moutai Airport, with direct flights to Beijing, Shanghai and other major cities.
As for why the stock price is faring so well, TMT Post takes a more sceptical view, claiming that the Moutai market is “a bubble from head to tail”. Indeed, TMT’s curt observation was followed this week by an unusual warning from Xinhua that “shares in China’s biggest liquor maker should rise at a slower pace”. Kweichow Moutai promptly responded with a stock exchange filing stating that investors should be cautious and agreeing valuations were “overly high”.
Meanwhile Xi continues to take an interest in baijiu – albeit more in its pricing. During the 19th Party Congress, Xi met with delegates from Guizhou and discussed the liquor made in one of its townships, Yanbo Baijiu. Told the product was meant for ordinary folk, Xi asked how much it cost. When he was told it was Rmb99 a bottle, he declared that it “wasn’t cheap”. The fawning official thanked him and said she would take his advice on board. Xi replied that he was not trying to interfere: “This is a market issue, you should follow the market”.
The bottler later slashed the price by 30%…
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