Economy

Markets

Industries

Insights

Reports

Events

Moutai brews up new expansion

By Ding Qingfen (China Daily)
Updated: 2009-01-22 07:58

High-end liquor products from Moutai displayed at the China International Alcholic Drinks Expo in Beijing. [China Daily]

Kweichow Moutai has always been seen as a stock market maverick. It has never found it constraining to be basically a one-product company, nor does it seem bothered by the fact that the high unit price of its shares is turning away many potential investors.

Owning one of China's most recognized brands, the company can afford to be, well, different. As most wine makers on the mainland go down market in the economic crisis, Moutai is stepping up production of its premium wine to consolidate its stranglehold on the top end segment, which comprises over 90 percent of its annual sales.

In early December 2008 when the global economic gloom was beginning to spread to China, Moutai surprised the investment public by announcing an ambitious plan to expand production of its premium wine.

The company said it would invest 1.46 billion yuan in 2009 to raise production capacity by 10 percent to 22,000 tons. The project is scheduled for completion in 2014. By then, the company predicted a profit of 585.27 million yuan on sales of 1.27 billion yuan.

The investment, more than double that for 2008, comes as liquor sales on the mainland are flattening.

"The move (of Moutai) is beyond our expectations although we believe it is reasonable," said Huang Wei, senior beverage analyst at China Jianyin Investment Securities.

Sales of liquor in the last quarter of 2008, the busiest season in the year for the industry, rose 18.43 percent from a year earlier to 42 billion yuan, figures from Jianyin showed. Hard hit, however, were sales of high-end liquor, which are expected by industrial experts to remain flat in the next two years.

Jianyin research showed that high-end liquor sales in the 2008 fourth quarter declined by around 20 to 30 percent from a year earlier.

Unsurprisingly, many wine makers are abandoning the high-end market in droves. Wuliangye, China's top liquor producer with a 5.7 percent market share by sales revenue, has said it will freeze its capacity of high-end liquor while concentrating on developing the low- to mid-end products.

Teng Wenfei, analyst from Shanghai Securities, estimated that Moutai's profit in the last quarter of 2008 had fallen by 5 to 10 percent from a year earlier. But the company's performance was still ahead of the industry average of a 15 to 20 percent decline.

However, the high-end sector is promising from a long-term view, that is why Moutai is so aggressively expanding.

"The sales growth in the high-end liquor sector will last for at least a decade, remaining at 15 percent on average," Teng predicted.

In addition to its capacity expansion plan, Moutai is also enlarging its national retailing network, and the number of stores in 2009 is expected to grow by 15 percent from the current 808, said Huang.