Brand strives to meet surging home demand
The share price of China’s major liquormaker Moutai recently surged to a record high. Kweichow Moutai shares skyrocket ed 100 percent to 683.4 yuan ($103) on Nov 10.
Industrial insiders said the boom was no surprise due to the unbalanced supply and demand of the company’s products in the market.
Despite the soaring demand, the company has vowed to keep its product prices stable, according to Moutai’s executive managers.
Generally, it takes five years to produce and age one bottle of Moutai, a process that involves 165 procedures, including fermentation. The long production period limits the company’s pace in expanding production, leaving a vast gap between supply and demand.
The distiller from Southwest China’s Guizhou province had earlier reported a 60 percent jump in net profit for the first nine months of the year, reaching 20 billion yuan.
As middle-class customers are now dominating the consumption market, their strong demand suggests great potential for further growth of sales and profit.
Song Yushu, vice-president of the China Alcoholic Drinks Association, said Moutai’s market value will keep growing, instead of going through cycles.
To maintain a sustainable relationship with its customers, the company will not increase its price sharply either, experts said.
However, some industrial insiders forecast the output quantity and price of Moutai will both increase in the upcoming three years with a compound growth rate of 10 percent.
Many executive managers of Moutai Group have stated the price of Moutai products will keep stable.
A 500 milliliter bottle of Feitian 53 will be sold below 1,199 yuan to wholesalers and 1,299 yuan to customers, the company said.
Previously, the Chinese government’s curbs on spending public funds had lowered the price of the liquor and share prices. But in the past year, both prices have picked up again.
The company has also strengthened inspection and regulation to punish retailers who deliberately stockpile goods to artificially raise prices by restricting supply.
Yuan Renguo, chairman of Moutai Group, said in August that the destiny of companies was decided by customers.
“Moutai will continue to prevent rapid price rises,” he said. “We will improve regulation in accordance with the market rules, in order to realize sustainability.”
Moutai’s revenue reached 38.4 billion yuan in January to September, contributing 90 percent to the whole industry.
Industrial insiders said the jump in sales resulted from its strategy of adjusting production during peak seasons.
In the middle of August, Moutai stopped producing customized liquor, reduced its sales plan for certain drinks and increased production of traditional Moutai products.
It asked all its dealers, shops and branches to sell at least 30 percent of products directly to customers through online platforms.
The company increased production from 2,000 metric tons to 6,200 tons during the National Day and Mid-Autumn Festival this year to meet the enlarged demand, 200 percent higher year-on-year.
Li Baofang, general manager of Moutai Group, said sales are expected to top 60 billion yuan this year, while its profit is forecast to reach 30 billion yuan.
Though the company has already put more products into the market, the supply still cannot meet demand, which means its performance in the fourth quarter will depend on how many bottles it can get to distributors.
During the meeting in August, the company said it will increase the quantity of liquor products on shelves to ease the tension of supply and demand.
In this sense, many securities firms concluded Moutai’s shares are far from reaching their ceiling. Huatai Security set its estimated price at between 676 yuan to 730 yuan.
Other Chinese liquor-makers, including Wuliangye, Luzhou Laojiao and Fenjiu, have also showed a quick pace of development.
According to their third-quarter reports, revenue and profit both grew at doubledigit rates for companies with a business scale exceeding 2 billion yuan. Their profit increased at an average of 20 percent.
“The Chinese liquor industry has entered a new stage of growth with products that have high quality, brand influence and unique characteristics,” said Xiang Ning, executive deputy head of New Food magazine.
“There’s no need to feel surprised when hearing Moutai’s share price exceeded 600 yuan, as it is an old liquor brand that represents Chinese culture and manufacturing,” Xiang said.