That’s the spirit: China’s Moutai aims to boost revenues by 15 per cent

Guizhou-based brand wants to capitalise on growing taste for more expensive liquor, but younger drinkers remain a challenge

PUBLISHED : Saturday, 15 April, 2017, 8:27pm
UPDATED : Saturday, 15 April, 2017, 9:59pm

Kweichow Moutai, the world’s most valuable liquor distiller, said it aims to boost revenue by more than 15 per cent this year as it benefits from Chinese consumers shifting to pricier spirits.

Full-year net income grew 8 per cent last year to 16.7 billion yuan (US$2.4 billion), Moutai said in an exchange filing in Shanghai late on Friday. Revenue rose 19 per cent to 38.9 billion yuan.

The Guizhou-based distiller, whose fiery liquor is the toast of choice for China’s political leaders, overtook Johnnie Walker-brand owner Diageo this week as the most valuable distiller in the world with a market value of US$72 billion.

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Moutai forecast full-year net income last December that missed the consensus estimate of 17.2 billion yuan. Analysts said this was due to a higher tax bill from China’s adjusted consumption tax policy. In that statement, Moutai said it was targeting sales volume of 50,000 tonnes of liquor in 2017.

Profit growth comes as Moutai raises wholesale prices, a sign that the top-shelf brands in the US$115 billion baijiu industry have succeeded in appealing more to a growing middle class.

“Moutai boasts the strongest pricing power in the industry with its strong brand awareness,” Lyu Chang, an analyst at SWS Research, said before the results. “It has robust growth momentum and rising levels of profitability driven by rising income levels and middle-class consumers spending more.”

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China’s officials and elite had propped up demand and prices for top-tier baijiu before President Xi Jinping’s anti-corruption campaign clamped down on government excess. In 2013, when the campaign was at its height, Moutai shares plunged almost 40 per cent. Since then, the stock has more than tripled.

Even as the baijiu industry leaves the anti-corruption crisis behind, it faces the long-term challenge of attracting young Chinese drinkers who are fonder of bars and nightclubs than the banquet halls where baijiu is often downed. Their willingness to spend more is also matched by a desire to invest in healthier lifestyles, while makers of wine and Western liquors like whiskey make a strong bid for their attention.

China imported US$341 million in wine in December last year, up 54 per cent from US$221 million in the same month in 2013, according to data released by the customs administration.

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“Red wine is gaining popularity among younger Chinese for dinner-table drinking, which is where baijiu is traditionally consumed,” said Hunter Williams, a partner at Oliver Wyman in Shanghai. “There’s a growing health-consciousness among consumers that could impact the demand for baijiu in the long term.”

The grain-based branded alcohol used to be a staple bribe in many unscrupulous Chinese business and political elite circles not only because of its exorbitant price, but also its scarcity.

The state-controlled brewer, based in the backwater town of Maotai in China’s southwest hinterland of Guizhou province, has deliberately controlled its output to keep Moutai’s prices high.

One of the most notable Moutai aficionados was late premier Zhou Enlai, who toasted Richard Nixon with a shot glass of the liquor during a state banquet welcoming the former US president’s historic 1972 visit.