“I think if we drink enough Moutai, we can solve anything,” Henry Kissinger, the then US Secretary of State, is said to have optimistically told Deng Xiaoping in 1974.
Maybe it’s the 53% alcohol content that helps to get the thinking more ambitious and perhaps it has played a part in hoisting the maker of China’s most coveted baijiu brand to the top of the rankings as the world’s most valuable drinks firm.
Kweichow Moutai is fermented from sorghum using water sourced from the Chishui River, on whose banks the Guizhou town of Moutai stands. The distiller was worth about $385 billion this week or $150 billion more than Coca-Cola.
The baijiu giant’s shares have surged over the last two years on the back of stronger sales and supercharged profits, buoyed by its branding at the exclusive and pricey end of China’s liquor market (see WiC468).
But protecting a premium brand means that production volumes can’t grow forever and there is a ceiling on the price rises that have delivered such stellar returns for shareholders.
One way of keeping the growth going is brand extension and Moutai has been causing a stir with its latest release of a locally produced red wine, priced at an aggressive Rmb3,299 (or more than $500) a bottle.
Netizens were tickled by the news, noting that the new range is more expensive than many of Moutai’s best bottles of baijiu. Clearly its makers are hoping for a halo effect from their high-end spirits, with the domestic media also reporting that Moutai is planning an A-share listing for its grape-based wine business within four years.
Before then it will need a pick-up in sales from just Rmb300 million last year – a drop in the ocean on the Rmb98 billion made from baijiu over the same period. Moutai bosses also have a history of plotting spin-offs that haven’t come to fruition. There has been talk about an IPO for Xijiu – one of its less expensive baijiu brands – for years and other mentions of a share sale for its ‘health wine’ business, which makes medicinal liquor by soaking herbs and animal parts in alcohol.
The newer focus on higher-end red wines, however, looks like a sensible hedge against some of the risks the company faces of changes to traditional tastes among younger consumers born in the 1980s and 1990s. Yet China’s winemakers have struggled to stem the flow of imports at the premium end of the market from more fabled producers, with local wine fans generally preferring to spend more on pricey foreign labels, particularly those from Burgundy and Bordeaux. The pandemic has hurt domestic firms in the short term as well: profits at the 155 homegrown producers said to be of commercial scale were just Rmb259 million last year, a plunge of 75% on the prior year, according to the China Wine Industry Association.
Numbers like those won’t get hearts racing at Moutai but it helps that the baijiu giant has the resources to play the long game in the sector. Its wine venture is hardly new either – the first vines were planted at Changli near Qinhuangdao in Hebei province in 2002.
In fact the winery is part of a comeback story for the Qinhuangdaoregion, which trumpets its similar latitude to Bordeaux and claims a history as the first place in China to make red wine in European style, back in 1983. Much of that reputation was squandered a decade ago, however, when its winemakers were caught topping up their bottles with chemical flavourings. With Moutai’s winemaking plan, they’re hoping that a specialist in sorghum will help to revive their viticultural spirits.
© 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.