Moutai Raising Factory Prices to Improve Brand Image: Analysts

China’s leading liquor brand Kweichow Moutai is raising the factory price of its flagship baijiu for the first time in six years, in a move that aims to tap into consumers’ “buy up, don’t buy down” mentality and broaden its sales channels, industry insiders say.

On Tuesday, the company announced an increase in the factory prices of its 53% baijiu by an average of 20%. The factory price of the 500 milliliter classic Moutai, the company’s most popular product, has increased from 969 yuan ($132) to around 1,169 yuan ($160) per bottle, while the recommended market price of 1,499 yuan has remained the same.

Factory prices are prices quoted for goods at the gate of a factory, before relevant handling and shipping costs.

Moutai’s stock price has jumped 5.63% since the announcement. The company has had high-profile collaborations in recent months with coffee giant Luckin Coffee, chocolate brand Dove, and Mengniu Dairy, as it looks to attract younger consumers.

By raising factory prices, the company can have greater control over distribution and market prices to better serve the mass market, Cai Xuefei, an alcoholic beverage industry analyst, told Sixth Tone.

“All of this is to … narrow the distance with ordinary consumers, thereby improving Moutai’s image and reputation,” said Cai. As one of China’s most popular brands of baijiu, Moutai is often used by middle-aged and elderly Chinese as a gift in formal and business occasions.

The price hike would eat into the profits of distributors, who currently price the 500 milliliter classic Moutai at around 3,000 yuan. In recent years, reports have emerged of distributors artificially increasing profit margins through stockpiling and speculation.

Company statements show Moutai’s net profits increased 19.09% year-on-year to around 53 billion yuan in the first three quarters of 2023. Direct sales increased around 45% year-on-year to 46 billion yuan, around 44.74% of overall revenue. Meanwhile, wholesale revenue increased less than 3% year-on-year.

Up until 2019, sales to distributors accounted for over 90% of revenue, while direct sales accounted for between 5% and 10%.

The pandemic saw Moutai place greater emphasis on direct sales, with a new e-commerce platform “I Maotai” launched in May 2022. In the first nine months of this year, the company saw revenue of 14.87 billion yuan, excluding tax, from the platform.

“The most important thing is the complementarity of online and offline sales channels. Overall, young people heavily favor online channels,” Zhu Danpeng, a food industry analyst, told Sixth Tone.

“Baijiu is a product used for socializing and giving face. Therefore, consumer confidence and perception are extra important,” said Cai. This means that Moutai’s target consumers are more likely to have a “buy up, don’t buy down” mentality, meaning that they would associate price drops with a less appealing product, said Zhu.

Many Chinese baijiu producers have struggled with falling sales in recent years. Zeng Congqin, chairman of major baijiu distillery Wuliangye Group, told 21st Century Business Herald in late October that more than a third of China’s large-scale baijiu producers were losing money in the first half of this year.

“At present, the entire alcohol industry is in a period of adjustment, with high inventory, low prices, and weak demand, so (Moutai) raising the factory price is about boosting the confidence of the market,” said Cai.

Zhu also sees the price hike as a positive move for the company. “The upcoming fourth quarter and the first quarter of next year are the peak sales season for baijiu, so it can be said that Moutai is preparing in advance.”

Editor: Vincent Chow.

(Header image: VCG)

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