China Liquor Giant Posts Slowest Revenue Growth in Five Years

Kweichow Moutai Co. said its revenue rose about 10% for 2020, the slowest growth in five years, as the world’s most valuable distiller remains cautious in raising prices of its prized liquor to avoid attention from China’s regulators.

The sales numbers, based on preliminary calculations reported late Thursday, are in line with the company’s initial guidance set at the beginning of the year and just below the consensus of 10.6% in a Bloomberg survey of 27 analysts.

The baijiu maker’s full-year net income of 45.5 billion yuan ($7 billion) was below an estimate of 46.46 billion yuan.

Moutai remains an investor darling as its status as China’s national drink and a closely guarded recipe have kept demand strong, even during the coronavirus pandemic. The shares jumped 69% in 2020, ending the year at an all-time high.

The state-owned distiller didn’t raise the factory-gate price of the group’s core baijiu product Feitian, which has stayed at 969 yuan a half-liter for three years. The retail price, however, has surged to about 3,000 yuan from 2,000 yuan at the beginning of 2020 as China’s growing middle class seeks out scarce bottles.

Moutai has limited ability to lift prices to distributors, as the effect on retail prices may draw attention from regulators, Bloomberg Intelligence analyst Kevin Kim wrote in December. The company has been targeted by the government, with state-run publication People’s Daily criticizing the firm in July for its high prices, saying the alcohol is often used in corruption cases.

The company is increasing its proportion of direct sales to gain more control over prices, in response to the regulators’ call against distributors hoarding and bidding up the price.

Capacity constraints add another issue contributing to slower revenue growth. The making of baijiu requires a specific location and climate to retain the drink’s flavor, limiting the ability to expand production.

The sales growth will accelerate in 2021 as the liquor production volume has been increasing and the direct sales channels are more diversified, according to a Jefferies analyst report in October. Moutai in 2019 produced about 50,000 tons of Moutai liquors, which will take at least five years to be ready for the market, about 45% more than the sales volume in the same year, indicating room for sales growth in the near future.

©2021 Bloomberg L.P.

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