Distillers see heady growth on the horizon

Kweichow Moutai Co Ltd, China’s iconic high-end spirit maker, has seen booming sales in the weeks ahead of the upcoming Spring Festival, which falls on Feb 5 this year, often a peak season for spirit products sales in the country.

In some stores in Beijing, the supply of 500-milliliter bottles of Moutai’s classic Feitian 53 percent liquor often falls short of demand.

Previously, Li Baofang, chairman of Moutai, a distiller from Maotai town in Southwest China’s Guizhou province, said the company would put 7,500 metric tons of its liquor onto the market before the weeklong Spring Festival holiday.

Some distributors from Beijing, Guangzhou and Shenzhen are looking for supplies of Moutai from other cities, and the prices remain high, indicating strong demand for the products, according to a research report from Zhongtai Securities.

Moutai’s rival, Sichuan province-based Wuliangye Yibin Co Ltd, saw double-digit growth in its sales ahead of this year’s Spring Festival compared with the same period of 2018.

Distributors from Beijing, Shanghai, Sichuan and Jiangsu provinces in particular recorded significant sales performance, on the strength of continuously growing demand, industry reports said.

From 2016 to 2018, high-end spiritmakers achieved rapid growth. This year, they expect to see more steady and structural growth, as leading companies will continue to stay competitive and post good earnings performance, Zhongtai said in its report.

Despite slower overall growth in 2019 to 2020, compared to faster growth in previous years, market demand for liquor products will remain robust, driven by the ongoing consumption upgrade trend in the country, said investment bank BOC International (China) Co Ltd.

Major liquor makers are reporting solid sales so far during this year’s festive period, while regional distillers, middleend and low-end products have seen their sales shrink further, said spirit industry analyst Cai Xuefei.

Xiao Zhuqing, an industry analyst, agreed. He said market polarization is a prominent problem in the spirit industry in China, as high-end liquor-makers are seeing continuous sales growth.

“The spirit industry pattern is almost fixed. With the strong growth and expansion of sales channels among established distillers, such as Moutai, Wuliangye and Yanghe, they have had a negative impact on lower-end and regional brands. Some smaller companies have lost their chance to expand further nationwide,” Xiao said.

Wuliangye said it would continue to strengthen its marketing efforts by utilizing big data, in addition to the promotion of cultural brand elements. For instance, the distiller recently began working with the Forbidden City, and sponsored a new TV show that introduced the ancient palace.

This year, Wuliangye aims to achieve sales revenue of 50 billion yuan ($7.4 billion), and it plans to ship 23,000 tons of its products, the company said in December.

In 2018, Moutai achieved whole-year sales revenue of 75 billion yuan, up 23 percent year-on-year. Its net profit totaled 34 billion yuan, jumping 25 percent over the previous year, according to its earnings report.

“This year, we aim to achieve sales revenue of 100 billion yuan, growing 14 percent over last year, and reach a net profit of 45 billion yuan. Our good performance in 2018 indicates that Moutai is strong enough to drive further gains,” Li said earlier.

At the end of last year, the shares of most spirit brands saw declines in the A-share market.

This year, among the 19 listed spirit companies in the A-share market, only two companies have witnessed a drop, and the rest all edged up. Some companies saw their share prices increase more than 10 percent in January.

On Jan 1 this year, Moutai closed at 598.98 yuan per share. As of Jan 25, it closed at 679.7 yuan, jumping 13.5 percent over the period. Previously, it became the first consumer stock with a market value exceeding 1 trillion yuan.

The first quarter of 2019 will be a low point for spirit companies’ share prices this year, but looking ahead, the stocks are expected to jump 30 percent through the year, said Huatai Securities.