China's baijiu, drink of generals, pushed to bargain bin

Tue Sep 10, 2013 5:09pm EDT
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By Adam Jourdan

SHANGHAI (Reuters) - Nearly three-quarters of a century after it was hailed for helping China's Red Army survive the tortuous Long March, fiery grain liquor baijiu has fallen down the ranks, hit by a crackdown on luxury spending that has clouded its prospects.

For decades, famed baijiu makers Kweichow Moutai Co Ltd and Wuliangye Yibin Co Ltd enjoyed fat profit margins that once dwarfed those of Apple Inc, helped by the Communist Party's penchant for a brew that fuelled many a business deal and smoothed over countless egos.

But at more than $300 a bottle, premium baijiu was also the perfect target for President Xi Jinping's campaign against extravagance as his administration tries to assuage public anger over corruption and restore faith in the party.

Last week, market leader Moutai reported its weakest first-half profit growth since 2001, and the company is set to post its slowest annual growth since it listed, according to data from Thomson Reuters SmartEstimates. Rival Wuliangye is also struggling: analysts forecast the distiller's 2013 profit growth will be the slowest since 2005.

Moutai declined to comment about its earnings or plans for the future, but a Wuliangye official, who declined to be named because he was not authorized to speak to the media, said the company was shifting its focus away from official and military channels and towards the wider consumer market.

Baijiu's fall from grace, however, means it now has to jostle for unfamiliar clients in China's $76 billion a year liquor market, where it has few devotees among the thirty-year-olds who drink most frequently and where imports such as plum liqueur from Japan's Choya Umeshu Co Ltd and Chivas Regal Scotch whisky from Pernod Ricard SA are gaining popularity.

"Good baijiu is too expensive so I can't afford it, while bad baijiu is way too strong, and drinking it can actually harm your health," said Xu Chunhui, 26, a Shanghai-based construction engineer whose drink of choice is whisky.

Prices have also tumbled, boding ill for those historically fat margins. A bottle of premium Moutai that sold for 2,000 yuan ($330) just last year could be had on cut-price website JiuXian last week at nearly half the price.   Continued...

An employee works along an assembly line at a liquor factory in Taiyuan, Shanxi province in this August 10, 2012 file photo. REUTERS/Stringer/File