Liquor lacks luster as crackdown hits high-end labels

In the first half of this year the profit growth of Chinese liquor companies plummeted to almost zero from the same period last year and this downward trend is likely to continue for the rest of the year, a leading official at the Ministry of Commerce said on Wednesday.

"Although the whole industry is still increasing in terms of production volume and profit, the downward trend of the growth rate is clear," said Lu Zhengmin, deputy director of the department of market operations and consumption promotion for the ministry.

China's profits of white spirit industry hit a total 39.9 billion yuan ($6.5 billion) in the first six months, an increase of 0.57 percent year-on-year, but much lower than a 55.1-percent increase during the same period of the previous year, according to a report from a national body of alcohol distribution.

In addition, the sales revenue of the industry was 240.2 billion yuan, with a year-on-year growth of 10 percent, according to the report.

"The rate decline is a direct result of an industry adjustment," Lu said. "For the last couple of years, the whole industry has grown too fast, especially in the high-end liquor market. But as the prices of the Chinese high-end liquors have stopped rising, the whole industry's growth now comes to a halt."

Industry insiders said in a response to the government's campaign since last year to crackdown on extravagance and lavish spending using public funds, many liquor companies have cut their prices, which resulted in a profit drop in the upmarket sector.

At a chain store that sells tobacco and alcohol in Beijing, a 500 milliliter bottle of Feitian Moutai Baijiu, produced by Kweichow Moutai was priced at 1,560 yuan this year, down from more than 2,300 yuan over the same period last year. Its major rival Wuliangye has also seen its price fall by 200 yuan at the store.

A sales representative said the price of all Moutai liquors has been slashed by 10 percent, but Wuliangye products have held up better than most.

Despite the price cuts, boxes of unsold Moutai and Wuliangye piled up in the store. "We are now clearing the stocks," Lu said. "The sales of these top-priced baijiu were not as good as last year." Baijiu is the generic name for Chinese white spirits, including Moutai.

Earlier this month, Kweichow Moutai, based in Southwest China's Guizhou province, said it has seen its revenue for the first six months of 2013 total 17.9 billion yuan, up only 0.6 percent year-on-year.

Meanwhile, Moutai's peers are also posting lackluster results. Jiugui Liquor Co Ltd said its first-half revenue has seen a rapid decline, resulting in a nearly 90 percent drop in profits.

Tie Li, a marketing specialist and an expert within the liquor industry, said the era of intoxicating high profits has come to an end in China's liquor market.

"As more upper-end liquor producers cut their prices to target the mid-range market, they will face a major challenge in rebuilding the distribution channels," he said.