Big shoes to fill

Gao Weidong, Moutai’s new boss

What experience could be so irresistible that even the risk of catching the coronavirus pales into insignificance? In the UK it’s going to see the Stereophonics, it seems, after thousands of fans packed into an arena to watch the band on March 14. Over in China, it’s getting hold of a decent bottle of Kweichow Moutai.

A huge crowd gathered outside a Walmart store in Shenzhen early this month after shoppers were given the chance to buy two bottles of the baijiu maker’s premium offering Flying Fairy at a retail price of Rmb1,499 ($213) each.

Winning one of the purchase quota was hitting the jackpot because prices for its better bottles can double in the secondary market, making for an almost instant profit.

Walmart’s booze bonanza followed a similar campaign at Costco last September (see WiC468).

Inasmuch as it marks the distiller’s retreat from relying on its more traditional dealerships for distribution, it also signifies the achievement of Moutai’s outgoing chairman Li Baofang.

Li joined Kweichow Moutai as its Party secretary in 2015 and he was appointed chairman in May 2018 after his predecessor Yuan Renguo was yanked from the role on bribery charges (see WiC479).

His mission was to clean up the national liquor champion, or, as Sina put it, “to stamp out the corrupting influence of Yuan” through radical reforms.

Li started by overhauling the organisational structure and introducing more performance incentives for the management. Under his leadership at least 450 employees have been promoted or put forward for development programmes, while 14 more senior executives have been booted out.

Li has tried to reduce Moutai’s reliance on the ‘franchise’ model – a hotbed for dirty dealing by senior staff selling quota rights to distributors with guanxi (see WiC120 for more about China’s connection-based system).

For that purpose, Moutai established a dedicated unit to run its own direct sales network last year in an initiative that has also helped it wrest back more control over the pricing of its products.

“Unloading this heavy burden, I am very happy and relaxed. This job, to be honest, has made me feel as if I am walking on thin ice all the time,” Li said at his last staff meeting on March 3. “Being able to hold this post unscathed until the last minute is a great thing itself,” he added.

According to NetEase Finance, Li had to step down because he has reached the mandatory retirement age of 62. His successor Gao Weidong will carry on with the sales channel restructuring and also oversee 30 big-ticket projects worth Rmb60 billion over the next three years. These include a bottling plant with capacity to distribute 80,000 tonnes of Moutai liquor a year, a warehouse to store 30,000 more tonnes, and a planting base for sorghum in Guizhou, the company’s home province.

After spending several years running a state-owned contractor that helped to build a development zone in the province’s capital Guiyang, Gao became the head of its transportation bureau and later its vice mayor. In 2018 he was appointed head of the province’s transport department.

As Moutai’s youngest chairman, he is now expected to lead another transformation in trying to woo more millennials, a demographic that the brand has struggled to attract. But above all he has the task of protecting the company’s Shanghai-listed share price. In December Moutai transferred about $8 billion of its shares, or a 4% stake, to a company controlled by the Guizhou government. The transaction is meant to support the debt-laden province as dividend payments will go directly into its coffers, the Wall Street Journal has reported.

Since 2015 Moutai’s stock price has soared nearly fivefold, giving it a market capitalisation of Rmb1.31 trillion. It expects net profits to increase by 10% to Rmb50.5 billion in 2020 on revenues of Rmb110 billion. The plan is to sell 34,500 tonnes of baijiu in 2020, up on last year’s 31,000 tonnes. Most of the volume gains will come from less expensive brands than its more exclusive Flying Fairy marque.

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