When Costco opened its first store in China in 2019, it wasn't just hot roast chicken and discounted Birkin tote bags that attracted crazy shoppers. A type of wine on the shelves called Kweichow Moutai (Kweichow), which tasted hot and throaty, was also "looted".
Priced at 1498 yuan and half a liter for $209 a bottle, it may not sound like the kind of bargain that Costco shoppers usually like, but in this case, it seems to be so. Because Moutai wine was discounted at a larger price in Costco than it was sold elsewhere, it was quickly snapped up.
Even in the face of the global COVID-19 pandemic, Kweichow Moutai, which produces the liquor, had a bumper year: in 2020, its stock price soared about 70 percent, making it China's most valuable company outside of the tech sector.
Globally, Kweichow Moutai (600519. SH) has a market capitalization that not only surpasses all other alcoholic distilleries such as British alcoholic beverage giant Diageo and Constellation Brands, the largest beer importer in the United States, but also coca-Cola, which has consistently ranked the world's largest beverage manufacturer by market capitalization. Kweichow Moutai is worth 2.7 trillion yuan ($421 billion) and is worth more than Toyota, Nike and Disney.
Ben Cavender, general manager of China Market Research Group Shanghai, said: "Any time they have [the product] in stock, it disappears almost immediately. ”
However, with the exception of Chinese expatriates, Moutai wine is still unknown overseas. According to its financial report, almost all (about 97%) of sales come only from China.
So how does a company that sells products primarily in one country now value more than some long-standing global giants? Can Moutai in Guizhou, which some Westerners call "drinking liquid razors," succeed in attracting non-Chinese consumers?
From history icons to identity symbols
Moutai wine has a clear advantage: it is the national spirit of China.
Moutai liquor is a liquor with an alcohol content of 53% produced by Guizhou Moutai Company, and its flagship product "Feitian Moutai" is a typical red and white bottle, which is a common wine on the table of Chinese state banquets and business events.
In China's modern history, Moutai has always been regarded as the "wine of diplomacy." Nixon's visit to China in 1972 was the use of this liquor to entertain the former U.S. president at this historic moment. In 2013, the leaders of China and the United States met in California, and it reappeared.
At a state dinner in 1974, U.S. Secretary of State Henry Kissinger raised a glass to Deng Xiaoping and said, "I think that as long as we drink enough Moutai wine, we can solve anything." ”
Deng Xiaoping responded, according to a transcript filed by the U.S. government, "Well, when I return to China, we have to take steps to increase its production." ”
Kavonde, general manager of China Market Research Group in Shanghai, said that as part of many of China's major public events, "it really has built the brand a national consciousness" and compared it to another beverage giant, Coca-Cola.
"If you look at the way Coca-Cola advertised over the last 50 years, you can see why Coca-Cola is doing so well from a marketing standpoint. They appear at almost every major event. When the Berlin Wall fell, you saw Coca-Cola; at Christmas, you saw ads for Coca-Cola. I think Moutai is that brand in China, so I think that explains why it's so popular. ”
A representative of Moutai liquor declined to be interviewed on the matter.
Nowadays, Moutai is more regarded as a "luxury". Some customers buy it not for a drink, but to keep the investment. Limited edition boxes are collected and displayed by international auction houses like Christie's, which says some of the packages can sell for more than $40,000 each.
Cavend said Moutai has found a "way to suit many ordinary consumers, at least for special occasions," while also offering expensive items that collectors can buy.
"I think that makes Moutai different from many international beverage brands," he said. "It's also a huge advantage during a difficult year: less travel spending makes it likely that wealthier consumers will invest more in alcohol."
The rapid rise in the capital markets
Moutai has long been seen as one of China's blue-chip stocks. In 2017, it became the world's largest liquor producer by market capitalization, surpassing DEO, owner of the world-famous Scotch whisky brand Johnnie Walker, Guinness, and gin brand Tanqueray.
In 2019, Moutai also became the first Chinese company to reach a stock price of 1,000 yuan (about $145) since 2005, setting another market record. In 2020, Moutai's stock price soared 69% to a record high, making it China's most valuable non-tech company.
Mr. Hong said he believed there was no major momentum for last year's rally. It's just that "most people are coming to realize that this company is able to generate strong cash flow and be debt-free."
He added: "It's like a badge of honor for value investing. People love this stock. ”
Li Xian, a 66-year-old Shanghai retiree, is one of them. Three years after going public in Moutai, he began investing in Moutai in 2004. Li said he was happy to be one of moutai investors because it was clear from the start that the company was "in good financial shape" and was able to pay generous dividends to shareholders.
Since then, he has invested more than 136,000 yuan (about $21,000) in the stock. The rewards were enormous: A few years ago, he earned enough money to get his son to college.
Li, who plans to hold Moutai stock indefinitely, said: "Just the annual dividend can cover my daily expenses. This will also help me to cover medical expenses and nursing expenses. ”
However, not everyone is so optimistic. Morningstar's equity analyst Allen Cheng downgraded Moutai stock in 2019, making headlines at the time.
Mr. Cheng, who has maintained that stance since then, said the company's outlook has been exaggerated and that "the market has reflected all the positives of the past decade." I think it's a bubble. ”
Authorities have also warned investors of a possible bubble in the stock market. In 2017, Kweichow Moutai suffered a huge sell-off, wiping out $7.8 billion in market value in one day. Xinhua published an editorial urging investors to take a more "rational view" of the company.
Xinhua said in an editorial: "For Moutai in Guizhou, it is important to keep moving slowly. Short-sighted speculation can cause huge damage to the value of the investment. ”
The making of Moutai sake
One of the biggest advantages of Moutai wine is its ability to keep the price of its products high. The company claims limited capacity because it can only produce liquor in one place.
The name of "Moutai Wine" is similar to "Champagne" from the region of the same name in France, Moutai wine originated from the picturesque town of Guizhou Province in southwest China and gave the wine its name. Just like Champagne, only wine produced in this particular geographical location can be called Moutai.
Here, Moutai says, liquor distilled from fermented sorghum and rice has a magical flavor.
According to the Moutai Museum, environmental factors such as seasonal changes in the climate of the town and the water quality of local rivers help to give baijiu a unique taste and are "beneficial to the production process."
In the town, the impact of Moutai on the local economy is obvious.
According to the disposable income statistics of the Renhuai Municipal Government in Guizhou Province, as of 2019, Moutai Town is the richest town in western China. Guizhou has always been one of the poorest regions in China.
Wang Qi, a local resident, said that if it were not for the liquor giant, Moutai Would never have become the richest town in western China.
He said: "Guizhou Moutai is the leader of Moutai wine. The boom in Moutai helped encourage him to open his own distillery, "and it influenced all aspects of town development." ”
Is only the Chinese market enough?
Moutai relies heavily on the Chinese market, which is an issue that the company has to consider on the road to internationalization. In fact, Moutai has tried to push its business overseas, especially in the United States to set up a "fan club", the company also traveled to Africa to seek new business partners, and worked with foreign players, such as Italy's Inter Milan Football Club.
But for the most part, it doesn't have much to show. In 2019, almost 97% of Moutai in Guizhou still came from China, but despite this, Moutai is still looking for ways to win the favor of foreign consumers.
Last March, Moutai launched a social campaign called "Stay home with Moutai", which encouraged users around the world to try out new recipes during the lockdown. For example, one Instagram and Twitter post suggested mixing Moutai into a "sunset cocktail," while another suggested pairing noodles with Moutai.
The move shows that even during the pandemic, Moutai is struggling to stay in touch with international consumers. But market analysts point to other challenges the company is facing.
Marland Rakis, manager of the alcoholic beverage industry at Euromonitor International, said Moutai needs to make more diversification efforts. He said: "It should have started yesterday. International spirits always start locally, such as liquor, but they go international, and that's the key. This is how you can dominate the world and become a sustainable international company. ”
Marland rakis cited examples of Mexican tequila, Russian vodka and American bourbon. Without globalization, he said, they "wouldn't have survived [down]."
Of course, this process cannot happen overnight.
William Dong, general manager of Evershine Australia, which distributes Moutai liquor in Australia, New Zealand and Italy, said more people needed to be educated about what liquor really was.
In an interview in Sydney, he said: "We have distributed our products to almost everywhere we can. But by the end, most customers are still Chinese," about 80 percent. ”
Baijiu is an acquired taste, which is useless. Marland Rakis said: "Some Westerners think that Moutai tastes 'a bit like drinking liquid blades.' The bigger threat, however, could be daigou and the gender gap within China. According to Marland Rakis, currently, the main group of people in baijiu is men between the ages of 40 and 60.
"The next generation of drinkers doesn't want to do exactly what their fathers did," he explains. If you don't start attracting new people, the future is not optimistic. ”
Marland Rakis compared it to sherry, which has been loved for centuries but later faded away because "it has become synonymous with consumption by older generations".
But not everyone is so worried about the future of Moutai wine. According to Euromonitor International, although Moutai's international status is not strong, it is still the world's best-selling liquor in 2019.
"The Chinese market is so big and it continues to add value," Cavend said. He also noted that there has been a recent surge of pride among locals, which could attract more domestic consumers.
Despite the challenges, even critics acknowledge that the company's dominance in the beverage space has barely diminished.
Cavend said: "The brand and the inheritance of the brand are actually impossible to replicate. Someone can't build a new business tomorrow and do everything that Moutai has been able to do so far. It is impossible to go back in time and get national leaders interested in your wine, nor is it possible to be in the town where they produce (get a foothold). So I think they have a strong brand story that allows Moutai to thrive. ”
(Canada U.S. Finance)
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Author: Faye
Editor-in-charge: Little Raccoon