Baijiu producer hit hard by mainland China crackdown

PUBLISHED : Tuesday, 03 December, 2013, 5:45am
UPDATED : Tuesday, 03 December, 2013, 5:45am

Baijiu producer Silver Base's interim loss jumped 335 per cent from the same period last year as it continues to reel from Beijing's drive to check the practice of giving expensive gifts as part of a crackdown on corruption.

The high-end liquor and cigarette seller said losses widened to HK$771.4 million from HK$177.1 million a year earlier.

The company has been repositioning itself by diversifying its product mix to incorporate more lower to mid-tier products but that has yet to stem losses.

Chairman and chief executive Liang Guoxing said he believed the worst for the industry had passed and the firm had made the proper price adjustments.

"It's not a new industry but one with thousands of years of history. From 2012, we've been increasing our low-end brands of baijiu and there's a lot of growth in that," Liang said, pointing to the mainland's urbanisation push and growing middle class.

The company has launched and developed lower-end products such as Guizhou Yaxi Cellar and Red Fen Shijia.

Before the onset of the austerity campaign, Silver Base, which sells brands such as Wuliangye Yongfu Jiangjiu, would mostly sell liquor priced above HK$2,000 a bottle. Prices of some varieties had been brought down to about HK$200 a bottle, Liang said.

Revenue dropped 51.6 per cent in the six months to September to HK$113.7 million.

Although Liang declined to disclose the exact sales proportion of high-end to low-end products, he said he expected it would be a 50-50 split within two years.

Given the rapidly deteriorating market for high-end baijiu on the mainland, Silver Base is also looking to online sales and overseas markets for a turnaround.

Chief financial officer Wang Jindong said the company was exploring more e-commerce opportunities and had invested in online wine sales platform Zhong Jiu Wang.

It is also increasing the use of digital channels such as Tmall and Jingdong.

Liang said overseas drinkers, including those in Southeast Asia and Europe, provided growth potential although it was mainly Chinese travellers and the overseas Chinese community who introduced baijiu to foreigners.

Shares in Silver Base yesterday dropped 4.46 per cent to close at HK$1.07, on a day the Hang Seng Index rose 0.66 per cent.