Chinese liquor producers feel hangover

Chill winds are sweeping the Chinese liquor (baijiu) industry, and competition in the low and middle ranks of the market will persist as the government continues a crackdown on luxury official banquets, analysts said.

"We believe the listed baijiu companies saw their business hit bottom in the second quarter," said Dennis Wang, an analyst with UBS on Wednesday, as he released an industry outlook report.

A customer shops for Chinese liquor at a supermarket in Yichang, Hubei province. Sales have plunged since last year, after the central government vowed to crack down on lavish liquor-fueled banquets. [Photo/China Daily]

"A modest recovery is likely during the second half of this year. But the full-year growth rate of this sector will be below 20 percent, which is the lowest level since 2003."

Intense competition will occur in the low and middle ranks of the market, where prices range from 100 ($16.30) to 300 yuan per bottle.

Meanwhile, more of the big brands are expanding into the grassroots market, as high-volume purchases shrink largely due to the authorities cutting public expenditure on receptions.

China's leading distiller, Wuliangye Yibin Co, was reported on Wednesday to be planning to introduce two new product lines late this month, at 100 to 400 yuan, as part of its move to seize opportunities in the mid-priced liquor market.

Sichuan-based Wuliangye and Guizhou-based Kweichow Moutai Co Ltd are the most prestigious distilled liquor brands in China, as well as the most popular among government and military officials.

But sales have plunged since last year, after the central government vowed to crack down on lavish baijiu-drenched banquets.

Shares of Wuliangye have slumped more than 27 percent this year.

Other high-end brands like Jiugui and Tuopai Yeast warned in their recent interim reports of 90 and 80 percent year-on-year falls in net profit, respectively.

"Personally, I feel 100 to 400 yuan is the most acceptable price on the market. There are fewer public reception banquets nowadays.

"But the grassroots' need for baijiu is still large, especially at business and wedding banquets," said Shi Liyan, a long-time distilled liquor dealer.