(Bloomberg) -- Kweichow Moutai Co.’s wholesale price extended a slump this year during China’s peak holiday season, as sustained weak demand prompted the liquor maker to buy back its shares for the first time ever.
The company’s flagship product Feitian Moutai has been on a downward trend this year, with the wholesale price of 2024 bottles in their original packaging dropping 20% since January. The price for the bottles fell to 2,365 yuan ($335) on Monday from 2,580 yuan less than two weeks ago, before this month’s Mid-Autumn Festival, according to liquor price tracker Jinrijiujia.
China is in peak demand season for the sorghum-based liquor, culminating with a seven-day national holiday in the first week of October.
The sluggish sales price during the holiday period “reflects the muted consumer desire to purchase gifts and subdued consumer confidence as China’s economic uncertainties deepen,” Bloomberg Intelligence senior consumer analyst Ada Li wrote.
Shanghai-listed Moutai said Friday it would buy back between 3 billion and 6 billion yuan worth of shares in what it called a bid to “enhance investor confidence” — its first such repurchase in the 23 years since it went public. The move was a positive surprise and the elevated cash return is likely to attract more long-term investors in a volatile market, according to a Citigroup Inc. research note.
Moutai’s shares rose as much as 2.3% in morning trading Monday, as shares of other Chinese liquor makers also rallied.
“We cannot rule out the company’s further operational action plans to stabilize its wholesale average selling price in the next 6 months and restore investors’ confidence in its long-term growth outlook,” Citigroup analysts including Xiaopo Wei wrote.
Moutai has long been considered a proxy for how well business is doing in China. Its sales have been hit by a sustained property slump and anemic economic recovery that have significantly reduced the frequency of occasions where the high-end beverage is consumed.
The brand is also facing waning appeal among younger Chinese who prefer more western alcohol including wine and beer. To reach a wider audience, Moutai has collaborated on an alcohol-infused chocolate under Mars Inc.’s Dove brand and with domestic coffee giant Luckin Coffee Inc. on a liquor-laced latte.
Moutai is a benchmark for China’s baijiu industry, and the sluggishness in its sales prices may signal a wider slowdown in demand for the liquor, Bloomberg Intelligence said this month. Shares were down more than 25% so far on-year as of Friday. UBS downgraded Moutai and other local baijiu stocks in July, citing factors including capacity expansion by top distillers.
Still, earnings remain firm and haven’t been impacted by the drop in wholesale prices as bottles are sold to distributors at a fixed rate.
--With assistance from Karthikeyan Sundaram.
©2024 Bloomberg L.P.
