Baijiu is a liquor (the word means white liquor) distilled in China that is sought after for official banquets and for gifts. Kweichow Moutai is probably the best known baijiu. Sales of the potent white spirit have risen in recent years, powered by a boom in the luxury market in China.
Baijiu sales hit by China's crackdown on extravagance
Baijiu, particularly the more expensive brands, was not in great demand this festive season as a result of the central government's crackdown on extravagance
Top-priced Baijiu, the fiery spirit traditionally drunk during Lunar New Year, was noticeably absent from gan bei gatherings this year in response to a government campaign against public spending and extravagance.
Gan bei, which translates from Putonghua as "dry the glass", refers to the drinking culture at mainland dinner tables, in particular during Lunar New Year, when Baijiu, or "white liquor", is the drink of choice used for toasts.
But Baijiu, particularly the more expensive brands, was not in great demand this festive season as a result of the central government's crackdown on extravagance ahead of the Lunar New Year, said Liu Yuan, the secretary-general of the China National Association for Liquor and Spirits Circulation. As a result, liquor retailers were heavily discounting their stock.
At a wholesale alcohol store, a 500 millilitre bottle of the upmarket Feitian Moutai Baijiu, produced by Kweichow Moutai with an alcohol content of 53 per cent, was priced at 1,560 yuan (HK$1,922) this New Year, down from more than 2,300 yuan over the same period last year. A 500ml bottle with an alcohol content of 52 per cent sold under the Wuliangye brand was priced at 1,050 yuan, compared with 1,330 yuan a bottle last year.
Boxes of unsold Moutai and Wuliangye were stacked up in the stores. "We are now clearing the stocks, but sales of these high-end Baijiu brands were not as good as last year even though prices have halved," said a sales representative.
"Feitian Moutai's Baijiu price was reduced a lot, but it's still too expensive to attract customers," said a sale representative at BHG Market Place, a boutique supermarket in Beijing. "I can offer another 500 yuan discount if you buy six bottles."
The representative offered a 100 yuan discount on the purchase price of six bottles of Wuliangye, which was priced at 1,299 yuan per bottle, and the same discount for National Cellar 1573, produced by Baijiu-maker Luzhou Laojiao, with a price tag of 1,398 yuan per bottle.
"The price cuts were mainly caused by the government's effort to restrict three public expenses," Liu said. The three public expenses identified by the government were hospitality, vehicles, and overseas trips.
The State Council has stepped up efforts to crack down on extravagance among government officials and state-owned companies in an effort to address corruption since last year.
Xue Yuhu, an analyst at HuaChuang Securities in Beijing, said the Baijiu industry was going through a "de-bubbling" process after a rapid price rise last year fuelled by speculation. "Some stores or agents stockpiled high-end Baijiu last year, but at 2,300 yuan, the price on a bottle of Feitian Moutai was unreasonable, resulting in overstocking and price reductions," he said.
The stock clearance and the "de-bubbling" process had now almost come to an end, Xue added, but the government's efforts to rein-in three public expenses would continue. Well-known listed Baijiu makers such as Moutai and Wuliangye would be affected the most, he said.
Baijiu makers generate 70 to 80 per cent of their sales during the Mid-Autumn Festival and Lunar New Year, and sales would inevitably go down after this month's festival, he said.
Liu of the China National Association for Liquor and Spirits Circulation also expects more changes in the Baijiu industry this year. "Baijiu makers may need to adjust their strategies and prices depending on market conditions after the Lunar New Year," he said.
Kweichow Moutai has already adjusted its expectations. Chairman Yuan Renguo said last month that sales for this year would reach 41.6 billion yuan, and although that is an 18 per cent increase on last year's sales, it is down from a 50 billion yuan forecast announced last July.
HuaChuang Securities' Xue nonetheless remained optimistic about the demand for high-end Baijiu in the long term. "There is a long history of business deals being made after drinking rounds of Baijiu. The culture will not pass away," he said.
According to a report by China Galaxy Securities, revenue from the mainland's Baijiu industry rose 27.3 per cent to 396.6 billion yuan in the first 11 months of last year, down from growth of 39.4 per cent in the same period of 2011.