Baijiu: from toasting profit to cutting prices

Dealers in Chinese high-end native alcohol, or baijiu, have been forced to seek new strategies after price drops triggered by the government's recent curbs on lavish spending.

"We are switching from targeting government and military officials to real estate businessmen," said Zhang Zeyu, a 48-year-old sales manager with Kweichou Moutai Group, in southwestern Guizhou province.

Moutai, a staple of elegant Chinese banquets, is the benchmark of high-end baijiu, which was widely consumed by government officials.

"It was easy to sell to local government organs, but now we have to be more focused on Beijing and Shanghai, where more can afford Moutai," Zhang said.

During its heyday, Moutai was hard to keep on shelves. Now, the manufacturer is allowing Zhang to order more inventory. But she said she turned down the offer.

"It (baijiu) is just not as profitable as it used to be," she said.

The number of her employees has shrunk from 100 two years ago to fewer than 40 now. "It's hard to pay the salaries, as there's hardly much profit left," Zhang said.

For instance, Zhang's top seller, Flying Moutai, which has 53 percent alcohol by volume, has had its price slashed. A bottle that easily cost over 2,000 yuan in 2011 was only 1,200 yuan last year, said Zhang.

"We even sold bottles for 800 yuan during this Lunar New Year," she said, noting that this price is barely above wholesale.

Many luxury liquor brands have been struggling this year. Kweichou Moutai announced in March a sales target of 43.9 billion yuan ($7 billion) with only 9 percent growth this year - the lowest in the past five years. In late April, market giant Wuliangye released its annual report, saying revenues in 2013 totaled only 24.72 billion yuan, a drop of 9.13 percent from a year earlier.

After President Xi Jinping took office in 2013, China's new leaderhip embarked on a campaign to eradicate corruption and cut extravagant spending.

To clear out inventory, the bigger baijiu dealers drastically reduced prices.

"They would rather sacrifice rebates from baijiu manufacturers than risk losing sales," according to Liu Feng, a baijiu dealer in Suzhou, Jiangsu province.

"That, to a great extent, forced the smaller dealers to give up on price," he added.

Some baijiu dealers have simply been squeezed out of the industry.

One of 28-year-old Han Ye's businesses was to distribute high-end liquors to State-owned enterprises in Beijing, but recently he quit and turned to religion-related gifts.

"If the market is gone, you must explore new ways to survive," he said.

But some dealers, like 38-year-old Chen Xiaoyong, are finding ways to stay in the industry.

Now that high-end baijiu is no longer being ordered by government units, Chen has turned to selling more medium-priced and low-end liquors, which are still popular with consumers.

In 2013, sales revenue for high-end liquor showed a year-on-year decrease of 63.56 percent, while medium and low-end brands grew by 15.77 percent compared with the previous year, according to the China Alcoholic Drinks Association.

"Lacking government purchases generated more transparency in baijiu's actual price, which is more accepted by general consumers," Chen said.

A better solution for baijiu dealers is to stop thinking about "serving the bigwigs" and try to satisfy the majority of consumers, said Xia Linlin, an expert in the industry.

"Baijiu producers should not simply put sales over efforts in product research and customer service," said Shen Yifang, former head of Jiangsu province's distilling association.

"If baijiu is not produced to meet the market's requirement, the industry won't survive."