The peak season of the year has arrived in China, which is followed by the Chuseok holiday (Sept. 14-17) and the National Day holiday (Oct. 1-7), but the Chinese liquor market is full of fresh air. Maotai, China’s No. 1 silk, has seen its price decline every year. Merchants say in unison that it is the worst situation in 10 years.
According to major liquor price platforms in China on the 4th, the wholesale price of Mao Tai Paytien 500ml, a high-end line of 52 degrees Celsius, was 2,365 yuan per bottle and 2,660 yuan per bottle, down from 15 days ago. As of August 17, the wholesale price was 2,450 yuan for bottles and 2,785 yuan for boxes.
This is significantly lower than the prices of 2,785 yuan in bottles and 3,005 yuan in boxes in early September last year. It is the first time in recent decades that the price of Maotai, China’s top silk, fell before Chuseok, when demand for futures reached its peak. During the peak of Spring Festival early this year, the price of Maotai exceeded 2,800 yuan per bottle.
Mao Zedong is the undisputed “national master” of China. There is a legend that Mao Zedong originated from the Han Dynasty in the town of Mao Zedong in Guizhou province. There is also a rumor that Mao Zedong and other Communist Party members engaged in a long journey during the Chinese Civil War passed through Guizhou, and the villagers treated him to Mao Zedong. During U.S. President Richard Nixon’s visit to China in 1972, Chinese Prime Minister Zhou Enlai served Mao Zedong and gained worldwide fame.
Mao-tai literally means more than just alcohol in China. Mao-tai is always served when welcoming the most important guests, not only at cross-country events but also in the private sector, while alcohol is served in China. Mao-tai means the best treatment. It is also regarded as an investment asset because of its scarcity value. It is not significantly affected by the economic downturn, and each year’s 12 Ganji editions are almost always subject to hoarding.
Why is Maotai’s price falling? First of all, merchants are citing the expansion of supply ahead of the national holiday. Maotai posted an operating profit of 36.97 billion yuan in the first half of this year, up 15.9 percent year-on-year. It staged all-out campaigns including discounts, expansion of supply and various joint ventures including coffee brands. The company’s performance was good, but the outlook is gloomy. Young people are turning a blind eye to traditional liquor including Maotai.
Moreover, the culture of exchanging ultra-high-priced gifts to maintain the “Guanxi” (human network) is becoming increasingly blurred. The stock price of Guizhou Maotai, which fell a whopping 16.3% until the beginning of this month, reflects this trend. Maotai has maintained its unchanged top market cap in mainland China, but lost its top market cap title to the Industrial and Commercial Bank of China in June. As a company, it had no choice but to think about ways to regain its competitiveness.
Maotai replaced its CEO in April after facing a crisis. It increased the proportion of e-commerce sales to recover sales and attract new young customers. It also conducted aggressive operations centered on large state-owned enterprises. Maotai, which was supplied relatively cheaply, was released in large quantities in the market. However, demand remains unchanged due to the sluggish domestic economy. There is a vicious cycle of oversupply and sluggish demand.
In the end, if consumer sentiment in the market does not recover, the ultra-high-priced baijiu market, including Mao Tai, will inevitably shrink further. Domestic demand is freezing. China’s retail sales grew only 2% year-on-year in August, continuing a low growth phase, and the price index, which directly reflects consumer sentiment, grew only negative or 0% for 17 consecutive months until July. Analysts say that domestic consumption has virtually lost its growth engine.
“This year’s Chuseok situation is worse than last year’s Chuseok, which is considered to be the worst ever,” a local liquor distributor said in an interview with Chinese media. “It is likely to be the coldest Chuseok in the last decade.”
SOPHIA KIM
US ASIA JOURNAL
