Jiugui Liquor Q1 profits drop

Hunan-based Jiugui Liquor Co on Monday reported a yearly drop of 91.5 percent in its net profits for the first quarter of 2013, which analysts said is a reflection of a sluggish domestic liquor industry dogged by an alleged additive scandal and a curb on extravagant consumption using public funds.

During the three months through March, the company's revenues fell 62.3 percent year-on-year to 198 million yuan ($32 million) from 526 million yuan, while its net profits fell to 10 million yuan from 119 million yuan over the same period, according to a statement Jiugui posted on the Shenzhen Stock Exchange Monday.

Jiugui attributed the drop to a decline in sales around China.

"The signature Jiuguijiu liquors did not sell well in Beijing and other nearby cities, which was made worse by the plasticizer scandal," said a liquor trader surnamed Wang at Beijing-based Qifeng Liquor Trading Co.

She noted that many traders around her are turning to other brands and have stopped stocking Jiuguijiu, offering big discounts to clear their stock.

In late 2012, concerns about liquor safety in China were heightened by media allegations of Jiuguijiu containing excessive DBP, a type of plasticizer, which experts say may cause harm to human immune and reproductive systems.

The central government's move to encourage more frugal practices among officials was another reason Jiugui sales fell, Yan Qiang, an analyst with Beijing-based Hejun Consulting, told the Global Times Monday.

"Most of Jiugui's liquors are sold at prices ranging from 300 to 500 yuan, which were mainly consumed by officials using public funds in Central China's Hunan Province," said Yan.

Excessive official spending on liquor should be banned, he said, as it is unhealthy for domestic liquor firms to have official consumption as their major development driver.

Sales of liquor priced between 100 and 300 yuan have not been affected much by the policy for now, but the outlook for sales of high-end liquors including Kweichow Moutai and Wuliangye is not optimistic, Wang said, noting that goods she had sold to upscale restaurants have been returned.

Based on financial results posted by the Shanghai-listed Kweichow Moutai Thursday, sales volumes of 106-proof Flying Moutai and Five-Star Moutai are estimated to have dropped by 9.98 percent year-on-year to 6 million bottles in the first quarter of 2013, the 21st Century Business Herald reported Friday.

"In response to this, we have to lower selling prices. Wuliangye, for instance, cut wholesale prices three months ago by some 300 yuan to around 660 yuan," Wang noted.

As liquor brands further slash their prices, Juigui's profits are likely to continue to feel the squeeze, Liu Yuan, secretary-general of the China National Association for Liquor and Spirits Circulation, told the Global Times Monday.