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A vintage offering

Luxury liquor distiller Moutai launches an app

Moutai-flying-fairy-bottle-w

Moutai’s iconic baijiu

There were not many surprising takeaways when Kweichow Moutai announced its annual results last week. Growth has slowed as net profit only rose 12% to Rmb52 billion ($8.2 billion) last year while revenue still topped Rmb100 billion for the first time.

However Chinese consumers were excited to hear that they can now purchase China’s most famous baijiu liquor through a smartphone app.  Called iMoutai, the new app is part of the strategy to boost profit margins further and it soon became the most downloaded choice among all Chinese apps, with media following its first few days with interest.

The company’s most popular label Flying Fairy hasn’t been made available through the new channel. Four other options were offered at prices ranging from Rmb1,088 to Rmb4,599. Each subscriber to the app is identified by blockchain, which brings benefits in weeding out scalpers and giving consumers the chance to buy bottles. Customers register interest in a purchase each morning and they find out by early evening if they have been successful.

Many still miss out, says Jiemian, a news portal. Nearly 2.2 million shoppers tried their luck on the opening day, which far exceeded the stock on offer. Only about 3 in every 10,000 online applicants were getting bottles of the most sought-after label.

Moutai has a history as the treasured tipple for businesspeople and public officials, as well as a darker reputation for corrupt exchanges between the two groups.

But the challenge for Kweichow Moutai bosses is how to maximise the returns on the brand’s popularity at a time when the company is still too reliant on thousands of third-party sales agents.

The upside of the dealership model is that the distributors pay for the baijiu before delivery, ensuring predictable cashflows. But the company lacks direct contact with its customers and can lose control of end user prices.

Many of the middlemen have made fortunes from the differences between wholesale and retail prices, especially for the most-desired bottles, which they often hold back from sale in a bid to drive up values further.

The sales model is also ripe for the kind of corruption that has led to the departure of a series of its senior bosses (see WiC479). So the current leadership is pushing ahead with a wider restructuring that introduces new ranges of baijiu across a wider variety of price points, as well as switching a greater proportion of business into channels like its own outlets and via contracts with larger retailers like Costco.

Revenues from sales directly to customers reached 23% of the total last year, up by 9% from the year before. On the other side of the coin, the number of domestic dealers in the sales network has fallen by about 900 over the last three years to a little over 2,000.

Moutai has been trying to move more of its sales online for at least a decade, including a complicated approach that required its dealers to put 30% of their quota through approved third-party sites. The strategy ran into trouble when senior figures in the operation were sacked in 2018 after more allegations of corruption. The e-commerce unit closed in the following year.

Now Moutai is trying again to connect with end users through iMoutai, where it will also be hoping to target the younger demographic of drinkers that it needs to power its future profits.

The traditional sales agents greeted iMoutai’s debut warily, with reports of sudden falls in the retail prices of favoured product lines like Flying Fairy. Some of that was probably the result of distributors selling down stock they have hoarded in the lead-up to the launch of the new sales channel.

Some commentators are still cautious about the app’s commercial prospects, however, especially if the platform holds back on sales of the most celebrated labels. They also wonder about the risks to its relationship with its sales agents as it tries to reduce their influence.

It is a tough balancing act to juggle Moutai’s old and new sales channels.


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