Will Lower Prices & Shifting Demand Hurt High-End Baijiu Brands?

    The names Moutai and Wuliangye, tongue-twisters to non-Mandarin speakers, are known throughout their native country to even the most sober of Chinese.
    Wuliangye and Moutai are two of China's top spirits brands.
    Nora ChenAuthor
      Published   in Finance

    Are Lower Prices Here To Stay?#

    The names




    , tongue-twisters to non-Mandarin speakers, are known throughout their native country to even the most sober of Chinese, being the two most popular brands of high-end baijiu, traditional Chinese distilled spirits. As Bloomberg Business reported last March, Moutai and Wuliangye’s renown exceeds even the luxury liquor market:

    The Hurun Research Institute, a wealth-analysis group in Shanghai, counts them among the 10 most-valuable luxury brands overall, pegging their “brand values” (based on the net value of brand equity) above such well-known European names as Gucci, Rolex, and Cartier. The Institute estimates Moutai’s brand value at $12 billion and Wuliangye’s at $7 billion.

    Along with art, watches, wine and jewelry, Chinese buyers -- seeking portable assets or looking to build up impressive collections -- have plowed billions into the vintage baijiu market in particular. With eyes on rare bottles, particularly those produced between 1959-1961 (when the Great Chinese Famine virtually decimated baijiu production), bidders at auction in China and Hong Kong have pushed vintage bottles far above high estimates. Last year, a bottle of vintage Moutai with an initial bidding price of 2.6 million yuan (US$408,683), sold for 8.9 million yuan (US $1.36 million) in the city of Guiyang. This January, a bottle of Wuliangye produced in the 1960s sold at auction for 980,000 yuan (US $155,687).

    However, the growing interest -- and indulgence -- in these high-end spirits via China’s wealthy and corporate elite proved great for sales of newly produced baijiu in 2011 as well. Bloomberg reported that Guizhou-based Moutai producer Kweichow Moutai generated an estimated 16.8 billion yuan (US $2.7 billion) in revenue during fiscal 2011, an annual increase of about 66.3 percent. Edging out Moutai, Wuliangye Yibin, based in Yibin, Sichuan Province, reported 20.2 billion yuan (US $3.2 billion) in revenue in 2011.

    Despite recent success, in light of Beijing’s recent edict banning government splurges on luxury goods using public funds, including liquors like Moutai and Wuliangye, retail prices recently reached a new low after years of skyrocketing growth. A bottle of 53-degree Feitian Moutai priced at 1,519 yuan (US$238), which as of last December could sell for as much as 2,700 yuan, could be bought in Beijing for around 1,300 yuan as of last month. Hit by greater scrutiny (at least close to government power centers like Beijing), exorbitant price increases in recent years, and rampant counterfeiting, some high-end ganbei enthusiasts are turning their attention to other brands, like Xi Jiu. Via Sinocism:

    Xi Jiu historically has been a mid-tier baijiu brand, but 2012 may turn out to be Xi Jiu’s year. Xi Jiu has two things going for it, in addition to having a name that is a homonym for 喜酒, or “wedding banquet liquor.” One, it may be more acceptable for bureaucrats to imbibe, if Wen’s crackdown is real. Two, and more important, the character for the “Xi” in “Xi Jiu” is the same character 习 as the surname of Xi Jinping 习近平, China’s presumed next leader.

    Whether the dropping prices for Moutai and Wuliangye are simply a reflection of a post-bubble correction (that bubble having been inflated by the explosion of China's high-end gift-giving culture over the past several years and government spending at banquets), or indicate a longer-term trend is up for debate. Lower retail prices, which are good for baijiu enthusiasts but not so much for the brands themselves, could threaten the "luxury" status of the labels, maybe they'd prefer to lose the extra scrutiny that comes about when a Chinese brand is attached to the "L word."

    After being listed as one of the only two Chinese companies on Hurun's top ten most valuable luxury brands for 2011 (the other being Wuliangye), Moutai spokesman Ye Yuanhong (叶远鸿) categorically disavowed his brand’s inclusion, telling Chinese media, “In regards to being included in Hurun’s luxury brand list, Moutai has never claimed itself eligible to be considered a luxury brand. We don’t know anything about Hurun’s list, and wish to distance ourselves from it.”

    Moutai has had a very uncomfortable relationship with the word “luxury” for quite some time. In November 2011, stories broke among Chinese media that Moutai would apply to be listed as an “international luxury brand.” As the story went viral, Moutai Group Honorary Chairman, Ji Keliang (季克良) denied that Moutai had such plans, saying he is “opposed to Moutai baijiu being referred to as a luxury good.”

    While Moutai and Wuliangye seemingly fret about dropping prices, the rising popularity of foreign spirits like whisky and cognac, and shifting demand at home, interestingly enough international brands that have made significant investments in Chinese baijiu brands are more bullish about their prospects overseas. As Jing Daily noted last month, drinks giant Diageo is confident that it’ll find a receptive audience for its Sichuan-based baijiu brand Shui Jing Fang in the UK. As the company recently announced, Diageo plans to make £99 (US$154) bottles of Shui Jing Fang available at high-end Chinese restaurants in the British capital as well as high-end department stores and hotels — looking, ostensibly — to tap the growing number of wealthy Chinese tourists, property buyers, and students now seen throughout the city.

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