Baijiu distillers change direction in face of China’s luxury clampdown

Baijiu, the fiery staple spirit of China, is beginning to suffer a slowdown as the government sets out to curb conspicuous spending and gifting.

Baijiu distillers have failed to see healthy profit increases as they lower their prices to appeal to a wider customer base

While emphasis has recently been placed on the position of international spirits in China’s slowing liquor market, it seems some local spirits are now beginning to suffer a similar fate.

Once perceived as one of the most enthusiastic markets for imported premium spirits such as Scotch whisky, a campaign by President Xi Jinping to crack down extravagant spending among his citizens has meant that the industry is now in decline.

Widely enjoyed in China through the decades, baijiu is a white liquor usually distilled from sorghum, although wheat, barley, glutinous rice and millet can also be used.

Yet the main consumers of this once prosperous spirit – that is, the elderly, government officials and military networks – are turning away from their once favoured beverage, attempting to shrug the image of indulgent official banqueting in the process.

Key baijiu players Kweichow Moutai and Wuliangye Yibin have boasted healthy profit margins for decades, yet as anti-gifting measures infiltrate its key market, producers are seeking alternatives. That is, as the elderly and those who hold official posts become increasingly scrupulous in their spending, nervous of being caught splashing out on luxuries, baijiu distillers have needed to appeal to a broader customer-base.

However premium baijiu – which can reach US$300 a bottle – is not largely enjoyed by China’s young professionals, who account for a large portion of the country’s liquor consumers, while cheaper baijiu suffers an unfavourable reputation.

Recently, Moutai reported its weakest first-half profit growth since 2001, while expectations for the company’s annual growth are fast dwindling. Analysts have attributed this performance to producers lowering the price of premium baijiu in a bid to appeal to a wider market – squeezing profit margins in the process.

As Torsten Stocker, a Hong Kong-based partner with consulting firm AT Kearney told Reuters: “For baijiu there is a new reality (producers) need to adjust to.

“With younger consumers adopting different drinking and entertainment habits, the underlying trend is that, in terms of market share, baijiu has nowhere to go but down.”