Moutai mlling liquor price hike as holiday season looms

December 6, Kweichow Moutai Co. Ltd. (600519.SH), a leading Chinese producer of high-end liquor, is mulling another round of price hikes before the traditional holiday season starts, despite China’s ongoing campaign to tame inflation.

The average price of Moutai liquor increased almost tenfold in the past decade, from RMB 200 ($31.4) per bottle in 2002 to RMB 2,100 recently.

Since 2006, the price of Moutai liquor has surged by 10-20% every year, according to Ma Yong, deputy secretary-general of Liquor Association of China.

In January, Moutai raised the ex-factory price of its products by 20%, meaning a bottle of Moutai Feitian 53-degree, a popular brand, climbed to RMB 619 from RMB 499.

On the retail side, prices can be as staggering as RMB 3,000 per bottle.

The wide gap between the factory and retail prices of the liquor products has a lot to do with the growth of China’s gross domestic product and surging demand from the pubic, Ji Keqiang, a former chairman of the company, said in an interview with the China Daily earlier this year.

New Hikes

The price hike trend is set to continue now with the New Year and the Spring Festival holidays looming. China’s lunar New Year falls on Jan. 23, 2012, during which time a lot of banquets and family gatherings occur at which Moutai liquor and other alcoholic drinks are served.

“The price changes almost every day, and on a weekly basis, we adjust the retail price of the products as well,” the Securities Daily quoted a sales person at a Moutai liquor sales office.

“It’s not just us, it’s every liquor brand’s routine of raising prices before the Spring Festival,” the sales person said.

Analysts said there’s still room for liquor prices to rise, due not only to the rising costs of raw materials and labor, but also to liquor producers’ eagerness to strengthen branding and raise profitability, the Securities Daily said.

Luxury Brand

Chinese liquor is regarded as the most promising luxury product line in a report published by the World Luxury Association and the University of International Business and Economics’ luxury research center, with Moutai and its biggest competitor Wuliangye under Wuliangye Yibin Co. Ltd. (000858.SZ) at the top of the ranking.

Chinese media reported that Moutai had already applied to become a luxury brand, and would appear in the spirit category of the world’s top 100 brands ranking in January next year. Former chairman Ji said in April that Moutai would not become a luxury brand.

The Guizhou-based company is being low-key about the issue, declining to elaborate on the application.

“Almost every liquor producer likes to highlight their brand value now, and there’s stronger competition in the industry as they [liquor producers] are not only competing in terms of price, but also in terms of product quality and cultural value of their brands,” China Investment Consulting food analyst Jian Aihua told the Securities Daily.

“This also in a way helps liquor brands become customized luxury products with collection value,” Jian said.

At the end of last year, a bottle of 1958 Moutai fetched a record price of RMB 1.45 million at an auction.