China’s Moutai Wants to Satisfy All Your Cravings
By Jacky Wong, Sept. 18, 2023, WSJ
China’s most valuable liquor brand is pouring on the charm with its new marketing campaign targeting younger Chinese.

Moutai’s new offerings may or may not stick. But the company’s traditional liquor business will probably keep raking in cash at a high level, even if the Chinese economy’s woes persist.

Kweichow Moutai—the second most valuable listed Chinese company—has created a buzz on social media lately with its bold tie-ups with other food brands. Its liquor-filled chocolates—a collaboration with the Mars-owned Dove brand—sold out
immediately after their launch over the weekend. Around two weeks earlier, the company debuted its Moutai-infused latte at Luckin Coffee. The Chinese chain said it sold 5.42 million cups of the new concoction on its launch day.

Such boozy innovations aren’t usually what people think of when they mention Moutai, a fiery variety of baijiu, a spirit distilled from fermented sorghum. The liquor brand has long been considered a status symbol in China, served in national dinners
and banquets. Its premium variety Moutai Flying Fairy, with 53% alcohol, sells for around $400 for a half-liter bottle. Some rarer or older bottles could sell for several times more.

Coffee and chocolates aren’t the first outside-the-box products from Moutai. The company launched liquor-infused ice cream last year, and the icy treat—with a kick—has apparently done pretty well. Moutai’s revenue from its “other business”
segment, which represents its non-liquor sales and includes its hotel operations, quadrupled year on year in the first half of 2023. But it still only accounted for 0.3% of its total revenue.

Such unorthodox products aren’t likely to become a significant sales driver anytime soon. The marketing gimmicks appear to be targeting China’s younger demographic, but the brand will probably remain indelibly associated in the minds of many Chinese
with older, wealthier individuals and formal dinners. The high price point of the spirit will also continue to put off many younger consumers, even assuming the brand’s visibility rises further in the wake of these new innovations. And it is unclear if
these fusion products would boost or dilute Moutai’s luxury brand value with its core customers.

But in truth, Moutai probably doesn’t need to worry much about whether these ventures work out or not. The company’s revenue has more than doubled since 2017. Its premium liquor brand gives it strong pricing power, and the company is ramping up its
direct sales channels including its iMoutai app. That could be a significant help: enabling Moutai to earn better margins by skipping over distributors. Direct sales revenue grew 35% year-over-year in the second quarter of 2023, compared with 12% for
sales through distributors, according to Bernstein. The research house expects direct sales to make up 60% of Moutai’s revenue by 2026, from 44% currently.

Similar to its liquor, however, Moutai stock doesn’t come cheap. With a market value of $315 billion, it trades at 31 times forward earnings, compared with Diageo’s 19 times, according to FactSet.

Moutai’s stock offers investors access to a unique high end Chinese brand—and now, chocolate as well. But luxury has its price: At 31 times earnings, a lot of other tasty morsels are available, too.

https://www.wsj.com/business/retail/chinas-moutai-wants-to-satisfy-all-your-cravings-3abe2a9c

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