From Planned Economy to 260-Billion-Dollar Market Value; Mr.Yuan Renguo: Moutai's Global Vision

Hong Kong, Jan 21, 2015 - (ACN Newswire) - Since the launch of the Shanghai-Hong Kong Stock Connect brought a new cross-border investment channel, one of Hong Kong investors' favourite A share stocks, Kweichow Moutai (600519.SS), has seen a 25% increase in its stock price in the past two months, and is now worth CNY 210 billion (HKD 260 billion) in market value. Behind the huge success of this "National Drink" is a person that's been with Moutai for four decades: current Chairman Yuan Renguo. From the old planned-economy days to the 21st century, Mr. Yuan has been leading the state-owned enterprise through thick and thin, every step of the way.

With the new era comes a series of new challenges for Moutai, including fierce competitions from western drinks such as wine and whiskey, the anti-corruption campaign in Mainland China and the administration's knock-down on the "three public spendings". For Mr. Yuan a Guizhou (aka Kweichow) native whose earthy, grounded personality never gets in the way of innovative thinking, the answer lies in expanding new frontiers. While insisting on keeping the traditional technique of Chinese liquor-making, he plans on making a transition to the leisure-drinking market and pushing the old brand to step out of its comfort zone, striving to become a strong competitor in the global arena.

As the chairman of a major blue chip company in the A share market, Mr. Yuan Renguo, aged 59, is quite unlike most other top leaders of state-owned enterprises. He looks plain and mild-mannered, with no sign of the worldly shrewdness commonly possessed by high-level officials or businessmen.

A History in PoliticsBoasting a history spanning over 60 years, the Kweichow Moutai Group produces one of China's most celebrated national brands. The epitome of high-end Chinese liquor, Moutai's retail price constantly reaches a few thousands CNY per bottle, at times even exceeding the 10-thousand CNY. The combination of the high price and limited supply result in a considerable amount of "fake Moutai" in the market.

In China, Moutai is widely known as the "national drink". Since the founding of the CPC (Communist Party of China) government, Moutai has always has a special connection with Chinese politics. "No product in China shares such a close bond with politics as Moutai. It holds a unique place in China's diplomatic relationships with other counties," Mr. Yuan says. "In 1949, Moutai was designated as the state banquet liquor at the founding ceremony of China. When news broke that the plane that Lin Biao [a notorious traitor who was on the run after committing treason] boarded to flee China crashed, the first words of Prime Minister Zhou Enlai were 'bring me the Moutai'."

Moutai is produced exclusively in the town of Moutai, in the north-western Renhuai City of Guizhou Province. Situated on the east bank of the Chishui River, at the foot of Hanpo Mountain and on the slope of the Ma'an Mountain, Moutai has a unique climate with warm winters, hot summers, limited wind and rainfall, as well as high temperature and humidity. Such climate and the slightly acidic purple soil in the valley together result in the top-notch natural water ideal for liquor-making.

The Moutai distillery is built in the upper reach of the Chishui River where the surface water and groundwater are mixed together. This mixture has a moderate PH level and abundant trace elements, and benefits from a brewing environment with a history of thousands of years as well as active microorganisms in the air. Such characteristics greatly contribute to Moutai's unique taste and aroma, but also limit its production capacity. In other words, Moutai is, and always will be, a scarce product.

Complex Process, Limited SupplyMr. Yuan believes that "that status of Moutai is currently unchallenged in the domestic market". In his opinion, China's traditional customs and practices of liquor consumption have remained mostly the same after the influx of foreign wines, and Chinese people still prefer Chinese liquor. As the intense competition in China's liquor market has been going on for years, Moutai's sales have gone through many ups and downs. There are a few reasons behind the phenomenon, one being the limited production capacity of Moutai, another being the company's commitment to integrity. Mr. Yuan thinks it is vital to the quality and reputation of Moutai that its people abide by the principles of "never sacrificing moral, never compromising the making techniques, and never selling a bottle before it is fully matured".

He further explains that Moutai's making process involves six steps: koji making, liquor making, storing, blending, inspecting, and packaging. Such cycle lasts for one year, that is, "make koji during the Dragon Boat Festival, process Sha (sorghum) during the Double Ninth Festival, steam for nine times, ferment for eight times, and collect liquor for seven times". After collections, "the liquor is classified and stored, blended and preserved in cellars, and finally packaged to enter the market. The entire process takes five years." In other words, it takes at least five years for a bottle of Moutai to be available to consumers.

According to Mr. Yuan, a few years ago, Moutai experienced a extreme lack of supply, pushing the price even higher, to CNY2,000-3,000. Not many people know that at the time, there were actually over 100,000 tons of Moutai in the storehouses, but in order to ensure quality, Moutai was uncompromising about not selling bottles that haven't reached full maturity.

Leaving "Three Public Spendings"As the "national drink", Moutai is constantly associated with the Chinese officialdom. Public opinion believes that the sales of high-end liquor, largely represented by Moutai, will be fast track when it is favoured and supported by those in power; and once it is abandoned or suppressed by the government, it can quickly sink into depression.

One thing that serves as proof is that in December 2012, China's new administration began its anti-corruption campaign, prominently featuring strictly regulations on public expenses by officials. Subsequently, Moutai's stock price dropped drastically.

Mr. Yuan admits that Moutai is adapting to the new social-economic environment and striving to gradually switch its main market from official consumption to commercial consumption and leisure consumption, adding that the transition will start from the price segment. "The 15-year-old, 30-year-old, 50-year-old, or 80-year-old Millesimes Moutai with a price of over RMB 2,000 will be positioned as luxury products, while those with price below RMB 1,000 will be marketed as ordinary Moutai."

As China is increasingly market-oriented nowadays, Mr. Yuan believes that leaving the "three public spendings" is a natural course to be taken by the company, even more, marketization presents an extraordinary opportunity for the brand. He points out that the Chinese liquor market produces over ten million tons each year, which exceeds the demand. The government's opposition to extravagance and waste serve as a needed catalyst in the transformation and upgrading of many enterprises, which leads to market competitions that are healthier and more disciplined.

In China, Guizhou has always been known for its geographical remoteness, unsophisticated locals as well as its traditional and conservative social environment, which is embodied by Mr. Yuan. Yet, despite his traditional values, Mr. Yuan fully embraces innovation when it comes to keeping up with the ever-evolving global market. This year marks his 40th anniversary of working for Moutai-from a 19-year-old distillery worker to the chairman, he is a witness of Moutai's journey of development and transformation, and one of the brand's best ambassadors.

Rivalling Foreign Spirits and Supported by British Prince

With the growth of the middle class and globalization in Mainland China, an increasing number of Chinese people start to drink such foreign alcoholic beverages as wine and whiskey, bringing fierce competition to the liquor market of China. Mr. Yuan Renguo believes that Moutai stands strong against prominent foreign drinks. He shares a little story to demonstrate Moutai's competitive strength in the international market.

A One-Person Marketing TeamThe London Olympic Games took place in 2012, which also marked the 40th anniversary of Sino-British diplomacy. Moutai Group hosted the "China Night" spirit-exchange party in the Windsor Castle of London, inviting over 200 guests including members of the British Royal Family and political leaders as well as famous entrepreneurs from both countries. And it happened that Prince Andrew, the Duke of York, was sat right beside Mr. Yuan.

Prince Andrew said he had never drunk liquor but was willing to try. Surprisingly, as the night progresses, "he drank more than 10 cups and wasn't even drunk," Mr. Yuan recalls. That night, all the bottles of Moutai brought to the party were consumed, and many British guests even took home the empty Moutai bottles as souvenirs.

In many ways, Mr. Yuan embodies the essence of liquor, a carrier of culture and emotion that is been a Chinese legacy for thousands of years. He says that when he is at the distillery, he drinks Moutai with almost every meal. "I have many guests and I will propose a toast to everyone there. For each Moutai feast, we prepare over 10 tables for our consumers and distributors. To promote and recommend Moutai to others, we have to be Moutai drinkers ourselves first." He adds that drinking Moutai has "six NOS": no dizzy feeling, no throat stimulation, no dry mouth, no harm to the liver or stomach, and no drunken confusion at work in the afternoon after midday drinking. Even if you get drunk, you can sleep it off.

In Mr. Yuan's 40-year journey with Moutai, there is no shortage of stories. With passion and devotion, he sees himself a "one-man marketing team" committed to introduce this liquor of love, and Chinese culture to more people.

Appointed in Distress, Promoting Market-Oriented Reforms

In 1975, at the age of 19, Mr. Yuan Renguo began his career in Moutai distillery upon graduating high school. He started as a liquor-making worker, the most basic yet crucial part of the whole process. After that, he worked as koji maker, liquor storehouse worker, curator, publicity officer, office secretary, deputy director, liquor workshop director, secretary and distillery assistant director. In 1991, he became the deputy director of the Moutai distillery, and 7 years later was promoted general manager of the distillery, which marked as the beginning of a wonderful chapter for Moutai and himself.

Sales Grew by 50 Times within 15 YearsMr. Yuan often says that he was "appointed in distress". He recalled that in the planned economy era, all Moutai production directly goes to the state, which ranged from 300 tons to 700 tons, sometimes up to 1,000 tons; and the enterprise was not responsible for the sales. However, from 1991 on, Mainland China began the transition from planned economy to market economy, and as a state-owned enterprise, Moutai experienced an arduous process of adaptation. In 1998, for example, the annual production was 2,000 tons but only 700 tons were sold after six months.

Therefore, once he took office, he had to solve the "unsalable" problem that never occurred before. At that time, he quoted lyrics of three popular Chinese songs familiar to Chinese people to warn and encourage his staff. "First: Moutai is at its most critical time; second: we are our own saviours; third: where is the road? It is beneath our feet". In the last five months of that marketing year, he led his team to sell 1,400 tons.

It sounds like a myth but Moutai's market performance in the past near two decades can be seen by all. In 1998, when Mr. Yuan first took the chairman seat, Moutai's sales were CNY 800 million, which accounted for less than 0.01% of the total liquor sales in China; in 2013, the sales number reached CNY 40 billion, accounting for 3% of domestic liquor sales and taking over 46-47% of China's high-end liquor market.

The Hong Kong Economic Journal Liu Yi

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