China’s Kweichow Moutai: Hangover on the horizon at the world’s most valuable liquor company? (B) (Chinese version)

• Main Authors: REDDY, Srinivas K., JOSHI, Havovi
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2021
• Subjects: International marketing; Integrated marketing; Global brands; Market opportunities; Marketing strategy; Brands; Asian Studies; Marketing; Operations and Supply Chain Management
• Online Access: https://ink.library.smu.edu.sg/cases_coll_all/354; https://smu.sharepoint.com/sites/admin/CMP/cases/SMU-20-BATCH%20%5BPDF-Pic%5D/SMU-20-0030CN%20%5BKWEICHOW%20MOUTAI%20CN%5D/SMU-20-0030B%20CN%20%5BKWEICHOW%20MOUTAI%20B%20CN%5D.pdf?CT=1621593059365&OR=ItemsView
• Institution: Singapore Management University

This is a two-part case. Case A is set in October 2018, when Zenn Lee, Senior Analyst at a Shanghai-based securities brokerage, was working on the investment advisory to his clients on Kweichow Moutai (KM), the maker of the super-premium Moutai brand of baijiu, a Chinese spirit. The day before, KM’s share price had hit the 10% daily limit down and wiped out US$9.3 billion from its valuation. The Moutai brand commanded a premium price in the market because of its iconic image as the ‘national drink’, its distinct taste, and five-year-long production process that kept the supply depressed against the incessantly soaring demand. In 2012, the Chinese government’s 2012 austerity measures had stymied KM’s momentum, but by 2017, KM had managed to recoup its revenue growth by adjusting its marketing mix. The comeback was extraordinary; it overtook Diageo to become the world’s most valuable liquor company. By 2018 third quarter, KM’s prospects had grossly diminished due to the US-China trade spat, economic slowdown, and dampened consumer sentiments. The situation was exacerbated by graft allegations, the government’s intervention in pricing matters and a likely tax on alcohol consumption. With the lowest sales growth since 2012, KM’s third-quarter results shook its stronghold, and its share price plummeted. Lee speculated on the options ahead of KM to turn around its fortunes – How could it further its revenue and thereby its profitability? Should it pursue opportunities overseas? Case B is set after the 2019 results of KM, when sales had expanded that year by 15.5%, and net profit had increased by 17%. Though not yet matching the level of its pre-2012 growth rate, it was a satisfactory growth rate that had defied the gravity of the broad-based slowdown and dampened consumer sentiments. Lee had to give, once again, his rating for KM’s stock, and he wondered what fundamentals were driving the sales of Moutai regardless of the broader economic realities. Students will be able to 1) steer a luxury brand with a strong legacy and state-imposed restrictions to recoup its relevance in a rapidly evolving market, 2) evaluate and manage the marketing elements to achieve revenue growth, 3) determine the right route to develop an emerging market brand into a global brand, 4) evaluate the geographic market and customer segments when internationalising a domestic brand, 5) consider critical elements to enhance differentiation and maximise revenue.