China’s thirst empties shelves
World’s most valuable distiller can’t keep up with demand for favourite spirit
You know you’re in Maotai when you smell it. The picturesque town of about 100,000 in southwestern China is home to the world’s most valuable liquor company — and the soy saucelike scent of the Chinese grain alcohol baijiu, made by Kweichow Moutai Company, permeates the main street.
But inside the liquor stores along the road, the distiller’s main brands are all sold out. Lines form wherever bottles are available. The buying frenzy — and resulting shortages — extend nation-wide.
Moutai baijiu’s fiery flavour and potential to appreciate in price is driving the blistering demand. That in turn has pushed the company’s market value to more than US$145 billion ($197b), well past British whisky giant Diageo. The Chinese firm sells each bottle of its main Flying Fairy brand to distributors for 969 yuan ($206) and sets a suggested resale ceiling of 1499 yuan ($320), yet they routinely go for double online and off. Its website is out of stock. On shopping site JD.com, an 80-year bottle is listed for 196,888 yuan.
Chinese buyers say they like Moutai’s baijiu for its complex flavour and a purity that prevents hangovers — but its special manufacturing process also limits production.
The grain and water used to make it must come from Maotai town and the brew must be buried in urns for at least four years before it’s sold.
All that is putting Moutai’s chairman, Yuan Renguo, in the difficult position of having to sustain growth even as his company runs out of liquor. In a rare interview, he said the answer will lie partly in more ultrapremium and customised products that capitalise on the Moutai brand.
“Two thousand years ago, the Chinese calling card was lions, 1000 years ago it was Chinese porcelain, 500 years ago it was tea leaves and now it’s local brands with their own intellectual property,” he said. “I believe Moutai is one of these.” Baijiu, which means white liquor, can be made from sorghum, rice, wheat or corn, and may contain as much as 53 per cent alcohol by volume.
While few outside China buy the liquor, Moutai is part of national myth, as the drink of choice for Communist Party leaders. It’s what Mao Zedong and his comrades toasted with at the founding of the People’s Republic in 1949.
Just four years ago, the distiller was battling a slowdown as an aus- terity drive in Beijing slashed demand from government officials. But purchases by ordinary Chinese have more than compensated since then.
Yuan wants to sell more customised lines, like the HK$6000 ($1045) bottles with the company’s label, created exclusively for a Macau junket operator. He’s added more limited edition bottles like the ones Moutai created for the 70th anniversary of China’s WWII victory over Japan. That one is listed for 1999 yuan on the company’s website, though it is also sold out. Then there’s the opportunity to sell higher priced “mature baijiu”.
Yuan is also attempting to increase production. But he said Moutai won’t be able to produce more than 60,000 tonnes of its baijiu annually, based on the land it controls. While that’s 53 per cent more than last year’s production of 39,313 tonnes, the numbers reflect the endpoint to potential expansion.
In the face of production limits, the easiest way to keep revenue growing is to raise prices. An 18 per cent price increase announced by Moutai in December drove its shares up more than 8 per cent. Still, Beijing puts restrictions on the prices of highend liquor. And as a state-owned enterprise, Moutai is also expected to display a certain public spirit. So relying too heavily on price increases of its basic brands isn’t sustainable.
The company has said it has asked affiliates to keep prices stable and told retailers to prevent hoarding.
There’s also t he sense of social responsibility that Moutai must show, particularly as a profitable business in Guizhou, one of China’s poorest provinces.
Even as factories around the country embrace automation, its factory floor remains deliberately manpower heavy — the ribbon on each Moutai bottle is still tied by hand.
It has also just opened a non-profit university, Moutai University, the first in China to offer baijiu distillation as its core degree, to create even more experts on the luxury drink.
Wu Yuanjian, 20, who recently enrolled, sees a distillation degree as an entry ticket into a hot business. “I want to join the sales department of Moutai actually,” he said. “You can make more money there.”
Sitting on a massive cash pile of more than 69 billion yuan, the chairman’s other plans include expanding the company’s finance business through subsidiaries in insurance and asset management.
He is also weighing public listings of three of its units: its e-commerce business, an agricultural arm and another that sells the company’s lessexpensive baijiu, known as Xijiu or Xi liquor.
Last year, Goldman Sachs upgraded its price recommendation on Moutai’s shares 14 times, data compiled by Bloomberg shows, and other analysts also issued bullish views. At the moment, there are 26 analysts with buy ratings, three with hold ratings and no sell recommendations.
But as t he shares surged last year, the stateowned Xinhua News Agency urged investors to be more cautious, saying the stock should rise at a slower pace. The company issued its own statement saying analysts’ share price targets and valuations in the market were “overly high”. After a brief decline, however, the shares resumed their surge and ended about 109 per cent higher for 2017.
Bottles of Flying Fairy brand Moutai baijiu regularly sell for twice the $320 suggested retail price