China National Liquor Sees Market Value Shrink by 11 Percent in One Day

Luxury consumption drop among Chinese middle class reflects economic downturn
November 1, 2018 Updated: November 1, 2018

In the tightening Chinese economic climate, one point of data is China National Liquor — also known by its old name Maotai — an enterprise worth $150.4 billion as of this January. Its value was even higher than French luxury company LVMH, the biggest of its kind in the world.

On Oct. 29, however, China National Liquor’s market value dropped by 11 percent as sales performance failed to meet expectations. The downturn reflects the decrease in luxury consumption among the embattled Chinese middle class.

Maotai closed at 610.50 yuan ($87.64) in the Chinese stock market on Friday, Oct. 26. When re-opened Monday, it had dropped to 549.09, a 11.18 percent decrease with limits down the entire day, Sina reported. Maotai’s stock value continued to drop, closing on Oct. 30 at 524 yuan.

Maotai published records of its 2018 third quarter revenues and profits on Oct. 28. The company has a gross revenue of 19.7 billion yuan ($2.83 billion), representing an increase of 3.81 percent from the second quarter. Its net profit of 8.97 billion yuan was an increase of just 2.71 percent, undershooting the firm’s goals. In the same period in 2017, Maotai reported a profit increase of 138.5 percent.

In January, Maotai, which has been officially termed China National Liquor since 1951, surpassed the French luxury group LVMH in market value. LVMH, with a market value of $148.9 billion, owns Louis Vuitton, Christian Dior, LOEWE, Kenzo, Givenchy, as well as dozens of luxury champagne and wine brands, clothes’ brands, and other luxury brands.

In June 2018, the market value of Maotai reached 1 trillion yuan, a scale second only to banks and insurance companies in China’s stock markets.

Luxury Consumption

While the Chinese general population has been cutting down on luxury consumption for years, Maotai’s downturn shows that this phenomenon is now reaching the monied classes.

Since March 2018, the U.S.-China trade war has had a considerable impact on the Chinese economy. Increasing numbers of investors are moving their capital out of China and factories are shutting down.

In 2017, Maotai sold over 26,800 tons of product, equal to about 53.6 million bottles. One half-liter bottle of Maotai goes for 1,700 to 2,000 yuan, compared with just 10 to 30 yuan for Erguotou, China’s most popular liquor brand.

Because of its costs, the primary consumers of Maotai are people in the Chinese middle class or higher, representing a demographic of about 109 million people who on an individual basis drink an average of half a bottle a year. Several Maotai executives have told Chinese media that the company can only meet 50 percent of demand.

The reason why Maotai failed to meet sales expectations even in these circumstances is due to the fact that Chinese middle-class consumers are turning to cheaper alternatives for their alcohol purchases.

Wuliangye Yibin, the Chinese brand that sells the most liquor, sold about 180,000 tons in 2017 at 1,000 to 1,200 yuan per half-liter. In 2018, its profits increased by about 20 percent from the previous year

Luzhou Laojiao is one of China’s main liquor brands with sales of 54,100 metric tons in 2017. Its half-liter bottle is 150 to 600 yuan. In the third quarter of 2018, its profits were 45.59 percent higher than the same period last year.

Both Wuliangye Yibin and Luzhou Laojiao also saw major increases in revenue and profits from 2016 going on 2017, showing their appeal as substitutes for more expensive goods like Maotai.