How China’s ‘Firewater’ Became the World’s Most Valuable Liquor Brand | WSJ The Economics Of — Transcript

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1. 0:00- [Narrator] This is Moutai.
2. 0:02It's 53% alcohol, tastes like fire water,
3. 0:05and a bottle can cost tens of thousands of dollars.
4. 0:09- Moutai is the national liquor of China,
5. 0:11so it's many people's go-to drink.
6. 0:13- [Narrator] As Moutai's popularity grows,
7. 0:15so has its share price.
8. 0:17In June 2020, its surpassed China's biggest bank,
9. 0:20climbing to reach a valuation of over $500 billion in 2021.
10. 0:26Today, Moutai is the world's largest beverage company
11. 0:29by market value.
12. 0:31The company is now worth $295 billion.
13. 0:35That's more than double the market cap of the company
14. 0:38that owns Budweiser
15. 0:39and more than 10 times the parent company of Jack Daniel's.
16. 0:44But there are challenges ahead,
17. 0:46particularly among Chinese youths unwilling to splurge
18. 0:49and international consumers who know little about Moutai.
19. 0:53So, what's next for China's premier liquor brand?
20. 0:57This is the economics of Moutai.
21. 1:00(lighthearted music)
22. 1:04Before we get into the details, how do people drink Moutai?
23. 1:08- It'll be consumed in these tiny little
24. 1:10five or six mil baijiu glasses.
25. 1:13And the reason why it's so small
26. 1:14is because it is much stronger than your usual spirits,
27. 1:17and also because it's in such a small glass,
28. 1:20you can kind of sip your way
29. 1:22over the course of a long banquet
30. 1:23with many different dishes.
31. 1:25(group speaking in foreign language)
32. 1:28- [Narrator] Moutai is rooted deep in Chinese history,
33. 1:31earning a reputation as the drink of diplomacy.
34. 1:34During the Chinese Civil War in the 1930s,
35. 1:37communist soldiers on the run
36. 1:39made a stop at a village in Guizhou province,
37. 1:41where Moutai is made,
38. 1:43and reportedly used the liquor to wash their blistered feet
39. 1:46after trekking thousands of miles.
40. 1:48The story helps cement Moutai's status
41. 1:50as the drink of choice among the Communist Party leadership,
42. 1:53including Premier Zhou Enlai,
43. 1:55who toasted President Nixon with Moutai
44. 1:57during his historic visit to China in 1972.
45. 2:01Two years later, Secretary of State Henry Kissinger
46. 2:04met Zhou and said, "If we drink enough Moutai,
47. 2:06we can solve anything."
48. 2:09- Because of the fact
49. 2:09that it's been in so many historical moments,
50. 2:12so the brand awareness of Moutai is like topnotch,
51. 2:15which also explains why it's a status symbol.
52. 2:17My friends would bring Moutai to weddings.
53. 2:19If there's a political banquet,
54. 2:21then there will be Moutai served.
55. 2:24- Last chance 22,000.
56. 2:2545,000.
57. 2:2648,000.
58. 2:27(gavel tapping) Sold.
59. 2:29- [Narrator] Moutai is popular
60. 2:30among the rich and elite in China.
61. 2:32- Thank you. - [Narrator] This year,
62. 2:33Sotheby's hosted its first Moutai-themed auction.
63. 2:39- It has become a more prominent category
64. 2:42that demands its own category,
65. 2:44which is not an easy feat, I think.
66. 2:46- [Narrator] Paul Wong has been an auctioneer at Sotheby's
67. 2:49for more than a decade.
68. 2:50- So, 80% of our consumers they buy and drink
69. 2:54and 20% maybe they buy it,
70. 2:57you know, for, you know, saving up.
71. 2:59It's a safe buy even if you don't drink it now
72. 3:03because prominent brands like Moutai
73. 3:04will be ahead of the curve.
74. 3:07- [Narrator] Moutai is not only a safe choice
75. 3:09for collectors, but also for investors.
76. 3:12The liquor firm has long been considered
77. 3:14as one of China's bellwether stocks.
78. 3:16- Moutai is basically the anchor of value investing,
79. 3:19meaning that any fluctuations in Moutai share price
80. 3:23could affect the entire Chinese equity market.
81. 3:25It's sort of not in the official's interest
82. 3:28or in the investor's interest, to be honest,
83. 3:31to let Moutai share price fluctuate that much.
84. 3:34- [Narrator] Moutai shares have declined since early 2021,
85. 3:37amid Chinese President Xi Jinping's anti-corruption drive
86. 3:40and COVID restrictions.
87. 3:42But the stock has proved more resilient
88. 3:44than the broader Chinese stock market,
89. 3:46shown here by the country's benchmark index.
90. 3:50- What makes Moutai shares in general stable
91. 3:53despite these fluctuations
92. 3:54is that the demand remains pretty stable
93. 3:57even during COVID years.
94. 3:58Moutai's revenue increased,
95. 4:00so that kind of speaks to how stable the company is.
96. 4:05- [Narrator] Consistent high demand
97. 4:06and constrained supply is how Moutai keeps its prices high.
98. 4:11The cheapest bottle on the market costs about $350,
99. 4:16but vintage ones like this 80-year-old bottle
100. 4:19can go for almost $40,000.
101. 4:23And this lot from the 1970s smashed records
102. 4:26and was sold for 1.4 million.
103. 4:30Scarcity is what keeps Moutai expensive.
104. 4:33Much like champagne has to come from France
105. 4:36and bourbon from the US,
106. 4:38the liquor can only be made in this village in Guizhou.
107. 4:41- So the supply isn't that high usually.
108. 4:43A typical bottle of Moutai
109. 4:44takes at least five years to make.
110. 4:46It needs to use a specific type of grain,
111. 4:48which is a red color sorghum,
112. 4:49and then it needs to be distilled nine times
113. 4:52and aged three years.
114. 4:54So for any drop of Moutai
115. 4:56to go from production to the market, it takes quite a while.
116. 5:00- [Narrator] This seven-story statue
117. 5:01resembling a Moutai bottle
118. 5:03symbolizes the company's importance to Guizhou,
119. 5:06which owns Moutai.
120. 5:08- The GDP per capita of Moutai village
121. 5:11is about 310,000 US dollars,
122. 5:14and that's more than four times of the GDP per capita
123. 5:18of the entire US.
124. 5:21- [Narrator] Making sure the brand continues to thrive
125. 5:23is one of Moutai's biggest challenges.
126. 5:26- A brand, it's like a living entity
127. 5:29that always needs to be replenished.
128. 5:31(commercial spoken in foreign language)
129. 5:33- [Narrator] Moutai's consumer base has long been dominated
130. 5:36by older and wealthier Chinese
131. 5:38who appreciate the brand's historical significance
132. 5:41and could afford to serve bottles during formal dinners.
133. 5:44(commercial spoken in foreign language)
134. 5:46So the company launched new marketing campaigns
135. 5:49(commercial spoken in foreign language)
136. 5:50to target younger Chinese.
137. 5:53Over the past two years,
138. 5:54Moutai collaborated with newer brands,
139. 5:56including different flavors of prepackaged ice cream
140. 6:00and Moutai-infused lattes,
141. 6:02which went viral on Chinese social media
142. 6:04when it launched last September.
143. 6:06That same month,
144. 6:07the company unveiled a new partnership with Dove
145. 6:10to release liquor-filled chocolate.
146. 6:13Priced between $5 to $10,
147. 6:15all of them sold out quickly,
148. 6:18though they only accounted for less than 0.3%
149. 6:21of Moutai's overall revenue,
150. 6:23and not everyone who bought these products enjoyed them.
151. 6:26- (speaking in foreign language)
152. 6:29- [Narrator] And if they don't like it,
153. 6:31they probably won't be willing
154. 6:32to splurge $350 on a bottle.
155. 6:35- Because the economy is not doing very well,
156. 6:37so people tend to downgrade their consumption.
157. 6:39Previously, they might, you know,
158. 6:41buy luxury bottle of Moutai.
159. 6:43Now they're fine with just beer.
160. 6:45- [Narrator] Another problem facing Moutai,
161. 6:47it's not well known outside of China.
162. 6:51That's why the company
163. 6:52is trying to promote the brand overseas
164. 6:55and expand its consumer base globally.
165. 6:58Moutai says it's now available in more than 70 countries.
166. 7:02- [Presenter] We shared Moutai's smooth taste
167. 7:04with the world.
168. 7:06- [Narrator] But the brand remains obscure
169. 7:08in global markets.
170. 7:09- I think most people who tend to really enjoy Moutai
171. 7:12are still Chinese.
172. 7:13I remember in one of the stories,
173. 7:15one of the interviewees said like, "I really don't get it.
174. 7:17You know, it tastes like ethanol."
175. 7:19- [Narrator] If Moutai wants to continue to grow,
176. 7:21it needs to be less reliant on the Chinese market.
177. 7:24- Looking ahead, if Moutai wants to be as stable as now,
178. 7:27that's fine, but if it wants to expand more aggressively,
179. 7:30it needs to look to the younger generation
180. 7:32and the global audience.
181. 7:34- [Narrator] Moutai may have a long way to go
182. 7:36before it becomes a global household name,
183. 7:38but its dominance in the liquor industry remains.
184. 7:41Its annual net profit in 2023 beat market expectations,
185. 7:45rising 19% to $10.3 billion.
186. 7:50- Moutai is a very big brand.
187. 7:51It's almost immune to many things
188. 7:53that are happening in the Chinese economy right now.
189. 7:55It is the most valuable alcohol producer in China
190. 7:58and the biggest in the world
191. 7:59and will probably continue to be.
192. 8:02(gentle music)