Kweichow Moutai Co undergoes strategy U-turn

08 May, 2019
Kweichow Moutai Co

Former chairman Yuan’s solution was to diversify and trade off the Moutai name. Used by Mao Zedong to toast the founding of the People’s Republic in 1949, Feitian and the ultra-premium baijiu lines run by the company’s Shanghai-listed arm are a must-have symbol of wealth and power on the banquet tables of China.

Yuan sought to grow the customisation business, which made HK$6,000 ($765) bottles of personalised Feitian for gambling junket operators in Macau, the world’s biggest casino hub and a magnet for China’s biggest spenders. The company introduced a raft of brands and sub-brands separate to the premium lines and Yuan also had plans for a less-expensive line of baijiu, which means white liquor, named Xijiu.

But the new guard - Li took over last May - has shut down subsidiaries, including one called Baijin Liquor, diverting some of their production lines to Moutai’s core brands and leaving hundreds of workers idle, according to the people.

Kweichow Moutai Co has more than doubled in value over the past two years, after leapfrogging Diageo in 2017. Thanks to

soaring demand for Feitian, Moutai’s gross profit margin has held around 90% for more than a decade, and the listed arm contributed 78% of the wider group’s revenue of 40.8 bn yuan ($6bn) in 2014. That’s expected to rise to 86% of the projected 100bn yuan in sales this year.

The brand cull was aimed at protecting that flank. Some subsidiaries were causing “serious and negative impact to

Moutai’s reputation,” according to an internal company document from February announcing the shutdowns seen by Bloomberg and verified by people familiar with the company’s activities.

Moutai suspects distributors were paying kickbacks for the right to operate and distribute those subsidiary brands, tarnishing the company’s image, the people said.

A company representative didn’t respond to requests for comment.

Li is trying to streamline the alcohol giant as smaller rivals like Wuliangye Yibin Co muscle in on the baijiu trade

and Chinese consumer demand ebbs amid a slowing economy.

Moutai cut more than 400 of its 3,000 distributors throughout China in recent months, according to its annual report published in March. For the first time, the company is signing contracts directly with retailers, issuing a tender last month for six supermarkets to carry its stock. This week it announced the opening of a new in-house unit that will sell Feitian and other core brands directly to customers, bypassing distributors.





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