While Moutai and Shui Jing Fang looked overseas, Yanghe catered toward the mid-market range at home. (Yanghe) It would be putting it lightly to say that this past year was not a great one for high-end baijiu. Kweichow Moutai Co Ltd reported its weakest first-half profit growth since 2001, and its annual growth is expected to post at the slowest rate since it listed. Furthermore, its bottle prices have plummeted: a 2,000 RMB ($330) premium bottle was sold on discount website JiuXian for almost half that. Meanwhile, Wuliangye Yongfu Jiangjiu producer Silver Base saw its interim loss decline by a precipitous 335 percent from the same period last year. Its bottle prices dropped from HK$2,000 a bottle to HK$200. Revenue dropped 51.6 percent in the six months September. Diageo-owned Shui Jing Fang’s sales are down 50 percent, and the company released a warning this year that profit will be down by between 80 and 100 percent this year, said the company’s CEO in a November interview. With the Chinese government’s assertion that the anti-corruption crackdown that has hurt these brands this year will continue in to 2014, they are likely getting extremely nervous about sales for the upcoming Chinese New Year, where sales of gifting items like alcohol typically make up a large chunk of the company's yearly revenue. Baijiu is possibly one of the most affected sectors by the crackdown because it depended the most on government-funded purchases. According to a recent Reuters article, "The way Moutai used to be drunk until last year was always very much through government network, VIP and military networks," said Waldemar Jap, a managing director at Boston Consulting Group who works with liquor makers in China. "In the mass premium market the margin is much lower so you're not going to see the good old days of being able to sell just a few bottles," he added. As a result, baijiu companies have undertaken a variety of strategies to cope. While Moutai has been trying to target wealthy Chinese travelers abroad, Shui Jing Fang thinks it can convince Westerners to appreciate the spirit's firey taste. However, the answer to their problems may actually lie at home. According to a recent Millward Brown report on the top 100 most “valuable” Chinese brands, Jiangsu Yanghe Brewery, which also has bottles that can be found selling for around 2,000 RMB online, focused on shifting downmarket when the crackdown hit. Rather than trying to keep its place at the high end of the spectrum and watching bottle prices plummet, the company has decided to go for a more middle-class clientele in China. According to the report, the company aimed “to sell its products in every wine store, hotel, and supermarket” as part of its new strategy, in addition to a focus on eco-friendly production after a scandal over baijiu product safety. The report states that for 2012, the strategy paid off by causing the company’s annual revenue to reach 35.6 percent growth, with net profit growth by 53.9 percent. Yanghe’s next earnings announcement will arrive in March 2014, when it will be clear as to whether or not the brand’s mid-market bet will have worked again this year for Chinese New Year Sales. If it does, it may be time for competitors like Moutai to take note.
