High- end liquor sell­ers take a hit

China Daily (Hong Kong) - - BUSINESS - By WANG ZHUOQIONG wangzhuo­qiong@chi­nadaily. com.cn

Kwe­i­chow Moutai Co Ltd — China’s top liquor pro­ducer — has seen nearly flat growth in rev­enue in the first half of the year, hit by the govern­ment’s cam­paign to crack down on lav­ish spend­ing us­ing pub­lic funds.

The com­pany said its rev­enue for the first six months of 2013 was 17.9 bil­lion yuan ($2.9 bil­lion), up 0.6 per­cent year-on-year, or 100 mil­lion yuan.

The govern­ment’s cam­paign has hit high-end liquor com­pa­nies the most, in­dus­try in­sid­ers said.

In the first four months of the year, liquor pro­duc­tion vol­ume was 3.81 mil­lion kilo­liters, an in­crease of 6.9 per­cent year-onyear but down 10.36 per­cent­age points com­pared with the same pe­riod last year.

To boost sales, Moutai has slashed prices to at­tract more cus­tomers in the mid-range mar­ket. In mid-July, the com­pany said it planned to re­duce the prices of some prod­ucts by up to 50 per­cent.

But in­dus­try ex­perts are not op­ti­mistic about the com­pany’s ex­pan­sion plans in the midrange mar­ket, where its dis­tri­bu­tion chan­nels are not es­tab­lished well enough to com­pete with lo­cal brands.

For years, Moutai has re­lied heav­ily on high- end group con­sump­tion and spe­cial­ized stores to de­velop sales.

To change its dis­tri­bu­tion chan­nels, which used to tar­get lux­ury spend­ing, to aim at or­di­nary cus­tomers will take con­sid­er­able time and ef­fort, said Ma Fei, an in­dus­try con­sul­tant.

Mean­while, Moutai’s peers are also post­ing lack­lus­ter re­sults. Ji­ugui Liquor Co Ltd said its first-half rev­enue has seen a rapid de­cline, re­sult­ing in a nearly 90 per­cent drop in prof­its.

Sichuan Tuopaishede Group said be­cause of the govern­ment’s aus­ter­ity cam­paign and the re­stric­tions on the sale of al­co­holic drinks within the mil­i­tary, sales of its high-end prod­ucts have fallen sig­nif­i­cantly, as has its net profit, which is ex­pected to be down about 80 per­cent for the first half of the year.

An­other top liquor brand, Wu­liangye Group, launched mid- range prod­ucts priced be­tween 200 and 500 yuan this month. The group is seek­ing a flat­tened dis­tri­bu­tion chan­nel for all its prod­ucts to re­boot its prof­its, said Wang Chuan­cai, an in­dus­try con­sul­tant.

Tang Qiao, chair­man of Wu­liangye Group, said it is chang­ing its prod­uct struc­ture that used to em­pha­size the sales of its high-end prod­uct lines, bring­ing in 70 per­cent of rev­enues.

He said the sales tar­get for this year has been low­ered to about 30 bil­lion yuan, only slightly higher than last year’s 27.6 bil­lion yuan.

Tang said the days of de­mand ex­ceed­ing sup­ply are over. This year the in­ven­tory sit­u­a­tion has forced them to change their strat­egy for de­vel­op­ment.

Xie Ji, an an­a­lyst at the New Food In­dus­try In­sti­tute, said with the de­cline in spend­ing on lux­ury drinks and growth in pub­lic con­sump­tion of liquor, the two sides will even­tu­ally over­lap in the prod­uct range priced be­tween 100 and 300 yuan. The liquor prod­ucts of this price range will make up half of the in­dus­try to­tal sales in the fu­ture, he said.

An in­creas­ing num­ber of dis­trib­u­tors who used to rep­re­sent mid- range liquor brands have now shown strong in­ter­ests in Wu­liangye’s new prod­ucts, Xie said.

But he added the evo­lu­tion is far from over. Af­ter the tu­mult of con­trac­tion, sta­bil­ity in the mar­ket is only the first step. Deal­ing with over­ca­pac­ity will be a ma­jor chal­lenge, he added. For ex­am­ple, he said, there are about 2,000 liquor man­u­fac­tur­ers na­tion­wide. A num­ber of small liquor pro­duc­ers are very likely to dis­ap­pear.

GENG GUOQING / FOR CHINA DAILY

The rev­enue of Kwe­i­chow Moutai Co Ltd for the first six months of 2013 was 17.9 bil­lion yuan ($2.9 bil­lion), up 0.6 per­cent year-on-year.

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