Moutai showing the right spirit in tough environment

The company that makes Moutai, a staple of lavish Chinese banquets which dates back to the Song Dynasty (960-1279), plans to fight back against the hard times it has endured since the central government's anti-corruption agenda put the nation's favorite liquor in a tough spot.

Kweichow Moutai Co Ltd, a Guizhou province-based distiller, plans to launch a customization marketing company, in which Du Guangyi, deputy general manager of Kweichow Moutai, will hold a stake of 70 percent and an investment company in Beijing will take the rest.

"Our target is to reach 1 billion yuan ($165 million) this year for our customization business," said Moutai's Chairman Yuan Renguo on the sidelines of a provincial government meeting in January. "The reason we are doing this is that we feel the need to give more options to individual consumers rather than simply relying on sales to government departments."

He said the group expects sales worth 5 to 10 billion yuan within the next three to five years through the customization business.

The move is a reflection of the company's determination to regain its former glory after being almost wiped out by an austerity drive initiated by the ruling Party and the central government.

"You can put whatever you want on the bottle, be it a company logo or your own initials," said a purchasing manager surnamed Cai, whose company just closed a 200-million-yuan deal with Moutai for the customized liquor.

"I think the business model will become popular; you can save the liquor as part of a collection or give it as a gift because it's personalized," he said. "Even the general price of the liquor has been reduced, but it's still Moutai."

The customized Moutai will be priced at around 1,300 yuan per bottle, more or less the same as the normal liquor, and with a minimum order of 120 bottles for individuals and 600 for businesses.

Moutai, known as the "national liquor" of China, is often served at high-level banquets or given as a preferred gift for government officials, but its price is beyond the reach of average consumers. At upscale locations such as the Ritz-Carlton hotel in Beijing, a single bottle of the 50-year-old blend can sell for as much 78,888 yuan.

Moutai's high price has made it an easy target of the government's ongoing campaign against the use of public funds to buy luxury items.

The company's share price slid so quickly that it suspended trading of its stock in mid-December. The company has seen a 28 percent share price drop from a peak last year in July.

The price of a bottle dropped by one-third from 2,250 yuan to 1,500 yuan within three months and has now fallen even lower, to around to 1,300 yuan.

The effect of the government crackdown is being felt throughout the whole distilling industry. The inventories of 14 listed enterprises involved in the white spirits industry surged 23.6 percent to 35.6 billion yuan in the third quarter of last year, while revenue fell 12.25 percent to 5.72 billion yuan.

Last year, the brokerage Huatai Securities Co issued a report showing that many sectors, including the real estate, luxury goods, and liquor industries, are expected to take a hit amid the continuing campaign.

But many liquor dealers are keeping faith with white spirits, even those that sell Moutai, said Wang Song, general manager of Guizhou Liquor Exchange, an institution for liquor trading and financing in Guizhou.

Wang said the lower price will attract more non-governmental customers to purchase the white spirit and 200 tons of Moutai, worth 500 million yuan, will be traded at the exchange as financing vehicles.

"Customers can purchase Moutai just like other futures product and they can decide to hold onto it or to sell at a higher price, according to the market trend," he explained, adding that there will be an increasing number of transactions of the liquor.

Sales of Moutai climbed to 40.2 billion yuan in 2013, up 13.8 percent year-on-year, with net profit of 22.2 billion, an increase of 12.75 percent. The target for this year is 45 billion yuan, with a growth rate of 12.5 percent, said the company.

Although it remains unknown if the company will continue to struggle, it seems that Moutai won't abandon its desire to push forward, just as it is. Referring to the company's recent woes, Yuan commented, "the sun always comes after the rain".

Contact the writers at lvchang@chinadaily.com.cn and zhaokai@chinadaily.com.cn