Kweichow Moutai Co undergoes strategy U-turn

08 May, 2019
Kweichow Moutai Co

China’s love of a fiery grain liquor made Kweichow Moutai Co the world’s most valuable alcohol distiller, and the company’s approach has been to milk that demand for all its worth.

But now a change in leadership is bringing a U-turn in Moutai’s strategy. Li Baofang, the new chairman of parent

Kweichow Moutai Group, is rolling back the efforts of his predecessor, Yuan Renguo, who quietly departed the company last May after 18 years at the helm and was removed on Sunday from a key political position in the company’s home province.

Li is seeking to re-focus the Moutai Group back on its cash cow: the Shanghai-listed arm that sells an ultra-premium line of baijiu - China’s national drink - embraced by the elite and increasingly coveted by the country’s rising middle class.

A customisation business is being halted, and subsidiaries that make alcohol for non-premium brands are being shut down to channel production resources to the listed arm, according to people familiar with the matter.

The parent group is also trying to sell directly to customers through the establishment of its own sales office, while cutting down the listed company’s 3,000-strong network of distributors.

Suspicion a system of kickbacks had developed between liquor distributors and some of these units helped trigger the shift, say the people, who didn’t want to be identified discussing internal company matters.

The changes are creating a stir among investors. The Shanghai Stock Exchange has asked the company’s controlling shareholder to explain the reason for setting up a new direct sales company, along with its business model and plans, according to a company filing late Tuesday (8 May).

The stock has lost as much as 12% this week amid concerns the new structure shifts power and sales to the parent group, away from the listed body.

Moutai’s Feitian, or Flying Fairy in English, is the king of China’s baijius. Made with local stream water and fermented sorghum in a mountain village in the nation’s south, production hasn’t been able to keep up with demand. While that’s added to the liquor’s cachet, it’s put the company in a challenging position when it comes to growth. Moutai can’t just hike prices because of government restrictions on the cost of high-end alcohol in China.

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