China’s Luxury Liquor Wants to Go Mass Market

Once the pricey quaff of China’s military and government officials, Moutai is pushing for mainstream appeal

The proof level of Moutai brand’s baijiu is 106. That’s more than 50 percent alcohol.

The proof level of Moutai brand’s baijiu is 106. That’s more than 50 percent alcohol.

Photographer: Caroline Tompkins for Bloomberg Businessweek

When President Richard Nixon and Premier Zhou Enlai toasted the opening of China to the U.S. during their historic 1972 banquet in Beijing, it was no surprise that the beverage in their glasses was the searing white spirit called baijiu (pronounced “bye-gee-o”) made by distiller Kweichow Moutai. Its pricey version of the locally popular quaff had long been a staple of formal gatherings across the mainland. The drink’s vaunted position continued, sending the price of a bottle of Moutai soaring to $300 in 2012 as baijiu became the go-to gift for officials during China’s dizzying economic boom.

The brand’s wild ride came to an abrupt halt two years ago, when President Xi Jinping’s war on graft made China’s self-proclaimed national liquor a symbol of boozy revelry and Communist Party excess. After Xi banned the lavish banquets in which free-flowing Moutai had long played a starring role, demand plunged among China’s elite.

That led distributors of Moutai to slash prices by more than half, putting it within reach of urban professionals and curious trendsetters. Baijiu makers have also sought to rebrand the liquor as a sophisticated indulgence, sort of China’s answer to single malt Scotch. To attract converts, Moutai has stepped up its marketing to the masses, sponsoring a 43-part TV series about a legendary Qing Dynasty gunfighter-turned-winemaker who founded the baijiu industry. The company announced in December it also would spend 200 million yuan ($32.3 million) to start a division to promote its lower-shelf brands such as Prince and Banquet liquor—costing 300 to 500 yuan—to attract customers not yet ready to shell out more for its namesake tipple. “The new targets for Moutai are middle-age, affluent consumers,” says Doreen Wang, the New York-based global head of the BrandZ unit at consultant Millward Brown.

President Richard Nixon and Premier Zhou Enlai
President Richard Nixon and Premier Zhou Enlai
Source: The Richard Nixon Presidential Library

Recent results suggest the brand may finally be shaking the hangover. Moutai could see sales surge as much as 11 percent this year, according to Goldman Sachs. That’s up from an estimated 1 percent rise in 2014. Guo Chaoren, a distributor in Guangzhou, reported a 20 percent sales jump during Lunar New Year festivities in February, selling out his entire 24,000-bottle supply. “The demand completely exceeded my expectations,” he says. The reason? More affluent Chinese are starting to see the 106-proof, sorghum-based liquor as something to sip among friends, not just to buy the favor of powerful officials.

While that’s welcome news for China’s estimated $23 billion baijiu market, moving the spirit’s positioning down market isn’t without risk. Moutai’s new drinkers are likely to hold back if prices rise too fast again. Yet there are signs that the repositioning is drawing attention for the drink far beyond its traditional strongholds. Bars specializing in the liquor are popping up from Beijing to London. And Lumos, a bar in New York’s trendy SoHo area that’s devoted to “white spirits” (a direct translation of the drink’s name), opened in March with a menu of 60 baijiu cocktails.

China’s military and the government account for only about 10 percent of Moutai sales, down from 30 percent two years ago, according to investment bank China International Capital. Falling prices have also helped Moutai win market share from cheaper rivals, such as Wuliangye Yibin, growing to an estimated 35 percent of the market held by publicly traded Chinese liquor makers last year, up from 25 percent in 2012.

Analysts predict sales in China of high-end items such as Moutai will stabilize in 2015. “After two years of the anticorruption campaign, a lot of the unusual consumption of high-end spirits has already been squeezed out,” says Charlie Chen, a Hong Kong-based analyst with BNP Paribas.

Overall baijiu sales grew 5.5 percent last year, rebounding from a drop the previous year, researcher Nielsen found in a survey of 1,100 Chinese stores. Sales were driven by midrange baijiu, which jumped 63 percent. Bottles exceeding 700 yuan fell 39 percent. As average Chinese consumers become willing to pay more for perceived quality and prestige, Moutai’s adherents say the luxury brand will be most likely to benefit. “Moutai is a brand with much culture and history,” says Guo, the Guangzhou-based distributor. “It is still the strongest brand in the baijiu industry.”

Wang Xi, a 28-year-old banker in Shenzhen, recently bought two bottles for about $150 each at Sam’s Club as personal gifts. Previously he had given the spirit to clients only if his employer, whom he declined to identify, picked up the then-sky-high tab.

“As China’s economy grows and our standard of living rises, Moutai will become more mass-market,” Wang Xi says. “People won’t have the feeling that drinking the liquor is an unattainable thing. If they want to drink it, they will.” —With Haixing Jin

The bottom line: Moutai’s baijiu liquor hit $300 a bottle in 2012. China’s anticorruption push hurt sales and forced price cuts.

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