China's baijiu king navigates rocky shoals of China's anti-luxury drive

* Kweichow Moutai set for weakest H1, FY growth

* Analysts expect growth to bounce back in 2015

* Investors help drive shares up 36 pct YTD

* Moutai reports H1 results later on Thursday

By Adam Jourdan

SHANGHAI, Aug 28 (Reuters) - Chinese premium liquor maker Kweichow Moutai Co Ltd is winning over investors with a sales strategy that shows other top-end brands how to survive Beijing’s anti-luxury drive.

The company’s fiery baijiu liquor, which outsells vodka worldwide, was the tipple of choice for China’s elite, but Beijing banned it from official banquets in 2012. At over $300 a bottle, it was deemed too opulent for state functions

Moutai has been cutting prices and its online sales and distribution deals have attracted a wider range of consumers and reduced its reliance on dwindling government spending.

Those moves have helped drive the company’s shares in Shanghai up 35 percent this year compared to the benchmark CSI300 Index which has remained flat.

The fate of Moutai is a potential lesson for premium product makers in China from global No.1 luxury group LVMH Moet Hennessy Louis Vuitton SA to cognac maker Remy Cointreau SA , who have also seen their China sales drop.

“Like Moutai, I wouldn’t be surprised if other mass luxury brands look at new ways to move their products in China,” said Ben Cavender, principal at China Market Research Group.

“We’re at a stage now where brands are trying to hook in the next generation of consumers, who are very tech-savvy and are used to buying things online.”

Kweichow Moutai did not respond to requests for comment. The company releases its first-half results on Thursday and is expected to see a small net profit gain.

Moutai narrowly avoided its weakest-ever profit growth last year and profit for 2014 is expected to rise 5.4 percent, its slowest rate ever, according to 18 analyst polled by Reuters.


In order to survive and thrive below the radar of officialdom, the former icon of opulence for China’s generals and the envy of rivals for its eye-watering profits has pushed more sales online, halved its prices and boosted tie-ups with discount sellers.

This has made the brand more affordable to the average buyer. The cost of Moutai’s core product, Feitian 53°, dropped from around 2,200 yuan (US$358) in 2012 to around 950 yuan now.

These moves were a major departure for a company once fined for illegally protecting its high prices. But the shift has convinced 17 of 19 analysts polled by Reuters to recommend the stock a “buy” or “strong buy”. None recommended it a “sell”.

Baijiu makers and sellers are trying to tempt more private drinkers to move away from official spending that previously made up half of all sales, analysts said.

“The government crackdown on public spending targeted officials using public funds to treat guests. It doesn’t mean as an individual consumer I can’t still buy Moutai,” said a Zhejiang-based government official, who asked not to be named as he is not permitted to speak to the press.

Premium baijiu makers like Moutai face not only the challenge of surviving the anti-luxury drive, but still contend with consumers not totally won over by the drink’s pungent taste and high alcohol level.

“Before Moutai was just too expensive. Now the price is okay, but I still won’t buy much,” said Zhang Hong, 47, a partner at a travel agency in the city of Wenzhou. “The truth is I just don’t like the taste.”

Bar owners like Simon Dang, co-founder of Capital Spirits in Beijing, are playing host to baijiu producers and distributors eager to learn how to target younger drinkers.

“It’s going to take some time to change the perception of baijiu, but we’re seeing that a relaxed bar setting is becoming a popular way to enjoy it,” he said.