The calculation assumes that all of the 50% not consumed immediately is hoarded basically forever.
It seems quite possible that some of this inventory is sold as time passes by because moatai splits his ex factory sales between distributors and e-commerce platforms to keep retail prices in the range that it feels like is reasonable for 5 years old moutai but leaves it to market for whatever is “vintage”
Thank you for your comment - that '5 year' in the table is designed to be illustrative of the effect. Fact is nobody really knows how much is out there. Additionally, the company has been pushing sales of Moutai 1935 to 'make up' for whatever slowdown in the ex-factory sales of Feitian Moutai.
Also, when “out of the gate flying fairy 5 years” ages, its taste improves which does makes it more valuable just like scotch whiskey. Has anyone found out if the price of “aged moutai” also dropped proportionately? For example a 2019 bottle selling for ???$ in 2024 vs a 2018 bottle selling for ???$ in 2023 since aged moutai is a different thing
brilliant. glad bill bishop recommended this piece in his newsletter today.
the analogy between hoarding maotai and hoarding houses, and their mutual speculative nature, is so on point.
maotai as a company could be so much more than it is; it should be the LVMH or Hermes of China, become a luxury conglomerate that acquires the likes of Juyondai, Ch Lafite, Rolls Royce and Bombardier into its portfolio. it should def NOT associate itself with the likes of low end coffee chains and ice creams. but ofc thats ideologically infeasible.
Thanks for the comment! To push back on your point here, as an example, Hermes does not only peddle its classic Kelly/Birkin bags - Hermes perfume is considered quite 'pedestrian' - generally luxury brands can (and actually should) sell things in other adjacent verticals in a way that generates mindshare but not dilute its 'core SKU'. Perhaps a collaboration with Arabica would've been more 'on brand' than with Luckin.
very fair. i was being too absolute. broadening the product line certainly can not hurt, but neither Hermes nor Maotai should forget their core aesthetics, that is selling prestige, not selling a particular design of bags or flavor of baiju.
any luxury company is always faced with the dilemma of 1) need to sell more to drive higher mindshare; but not 2) sell so much that it is no longer prestige. tricky balance (Kering/Michael Kors/Coach are Exhibit A/B/C of what not to do)
I have a worry: how are stock prices are affected by wholesale prices? Owning physical bottles of Moutai and owning its shares seem to be two completely different things. If it is possible for earnings to continue expanding at the 15% dictated by the SASAC, why would investors sell off the stock even if hoarders are clearing their inventories?
Unless hoarders are the main contributors to these earnings, but doesn't that mean that earnings should not have been able to grow whilst prices are getting depressed?
Thanks for the comment - I address these issues directly in the article: 1) it is precisely because that SASAC targets are likely not sustainable that is the risk - so I'm not sure what you mean that "earnings can continue to expand at 15% dictated by SASC"; 2) approx. 50% of volumes are consumed immediately, with the remaining from a combination of financially oriented speculators + regular folks who carry some extra inventory.
Thanks for the clarification and I apologise for the confusion.
I refer to your point on choosing #1 and #2 at the expense of #3. This means that Moutai meets the SASAC targets, keeps its wholesale prices low and stable, but its stock price will drop.
If the SASAC targets are earnings (and not volume) targets, then I'm confused. Because the continued earnings growth should be a boon for shareholders, who (logically) should only look at Moutai's overall financial health, and not its wholesale prices. The low wholesales prices should only affect speculators and hoarders of physical Moutai, who either hold or sell off their inventory.
If the targets are not sustainable and #1 not an option, is there a real trilemma? In that case, Moutai seems to have only two choices: (1) Allow its prices to fall in an attempt to meet its targets, thereby causing share prices to drop, but managing to 'shake out' speculators, and (2) Raise prices in an attempt to meet its targets, saving its share prices, but at some political cost.
The status quo strategy is looking to have #1 and #2 - what the company could do is find others (have a Moutai Repo contract with a financier for example) to buy inventory (think of it as factoring of inventory) to target #1 and #2 - so it is technically an option. Keep in mind Moutai distributors all made boatloads of money in the past decade leveraging that significant price gap between ex-factory and wholesale prices so they would be willing to help the company out if you will.
But you are right in that it gets increasingly unsustainable over time so stock prices are falling because everyone sees the writing on the wall.
1. This is the result of the business growing - let's not conflate the cause and the effect here.
2. Except they lose money on virtually all other baijiu they sell except maybe BoFen/Qinghua 20 - story for another day. For example, Wuliangye ex-factory price and wholesale price has been backwarddated forever - distributors have made money on Moutai yet, but they're struggling with almost everything else.
3. It's not Moutai if everyone can buy it as they wish - people are not drinking the liquor, they're drinking status.
4. See my previous point - status is luxury. If its a "consumer good" then the pricing power completely and fundamentally changes - that is the premise of Moutai trading at a high value, and why Hermes trades much richer than a Kering. You can't have it both ways. Secondly, I have no clue where you buy your Qinghua 30 but it for sure ain't 1400 RMB. The only thing that can possibly challenge Moutai is the Wuliangye Classic but they did a poor job of commercializing it, so it has not had nearly the impact it could've had.
5. I've made a very clear case of why 15% is likely to be unsustainable in the short to medium term - you should talk to distributors to see on how Q2 performance has been (hint: it's significantly below 15%)
Hi
The calculation assumes that all of the 50% not consumed immediately is hoarded basically forever.
It seems quite possible that some of this inventory is sold as time passes by because moatai splits his ex factory sales between distributors and e-commerce platforms to keep retail prices in the range that it feels like is reasonable for 5 years old moutai but leaves it to market for whatever is “vintage”
Thank you for your comment - that '5 year' in the table is designed to be illustrative of the effect. Fact is nobody really knows how much is out there. Additionally, the company has been pushing sales of Moutai 1935 to 'make up' for whatever slowdown in the ex-factory sales of Feitian Moutai.
Also, when “out of the gate flying fairy 5 years” ages, its taste improves which does makes it more valuable just like scotch whiskey. Has anyone found out if the price of “aged moutai” also dropped proportionately? For example a 2019 bottle selling for ???$ in 2024 vs a 2018 bottle selling for ???$ in 2023 since aged moutai is a different thing
It has come down. Do some work and you'll see :)
brilliant. glad bill bishop recommended this piece in his newsletter today.
the analogy between hoarding maotai and hoarding houses, and their mutual speculative nature, is so on point.
maotai as a company could be so much more than it is; it should be the LVMH or Hermes of China, become a luxury conglomerate that acquires the likes of Juyondai, Ch Lafite, Rolls Royce and Bombardier into its portfolio. it should def NOT associate itself with the likes of low end coffee chains and ice creams. but ofc thats ideologically infeasible.
Thanks for the comment! To push back on your point here, as an example, Hermes does not only peddle its classic Kelly/Birkin bags - Hermes perfume is considered quite 'pedestrian' - generally luxury brands can (and actually should) sell things in other adjacent verticals in a way that generates mindshare but not dilute its 'core SKU'. Perhaps a collaboration with Arabica would've been more 'on brand' than with Luckin.
very fair. i was being too absolute. broadening the product line certainly can not hurt, but neither Hermes nor Maotai should forget their core aesthetics, that is selling prestige, not selling a particular design of bags or flavor of baiju.
any luxury company is always faced with the dilemma of 1) need to sell more to drive higher mindshare; but not 2) sell so much that it is no longer prestige. tricky balance (Kering/Michael Kors/Coach are Exhibit A/B/C of what not to do)
agreed
Excellent piece and very fun read, thank you!
I have a worry: how are stock prices are affected by wholesale prices? Owning physical bottles of Moutai and owning its shares seem to be two completely different things. If it is possible for earnings to continue expanding at the 15% dictated by the SASAC, why would investors sell off the stock even if hoarders are clearing their inventories?
Unless hoarders are the main contributors to these earnings, but doesn't that mean that earnings should not have been able to grow whilst prices are getting depressed?
Thanks for the comment - I address these issues directly in the article: 1) it is precisely because that SASAC targets are likely not sustainable that is the risk - so I'm not sure what you mean that "earnings can continue to expand at 15% dictated by SASC"; 2) approx. 50% of volumes are consumed immediately, with the remaining from a combination of financially oriented speculators + regular folks who carry some extra inventory.
Thanks for the clarification and I apologise for the confusion.
I refer to your point on choosing #1 and #2 at the expense of #3. This means that Moutai meets the SASAC targets, keeps its wholesale prices low and stable, but its stock price will drop.
If the SASAC targets are earnings (and not volume) targets, then I'm confused. Because the continued earnings growth should be a boon for shareholders, who (logically) should only look at Moutai's overall financial health, and not its wholesale prices. The low wholesales prices should only affect speculators and hoarders of physical Moutai, who either hold or sell off their inventory.
If the targets are not sustainable and #1 not an option, is there a real trilemma? In that case, Moutai seems to have only two choices: (1) Allow its prices to fall in an attempt to meet its targets, thereby causing share prices to drop, but managing to 'shake out' speculators, and (2) Raise prices in an attempt to meet its targets, saving its share prices, but at some political cost.
What am I getting wrong here?
The status quo strategy is looking to have #1 and #2 - what the company could do is find others (have a Moutai Repo contract with a financier for example) to buy inventory (think of it as factoring of inventory) to target #1 and #2 - so it is technically an option. Keep in mind Moutai distributors all made boatloads of money in the past decade leveraging that significant price gap between ex-factory and wholesale prices so they would be willing to help the company out if you will.
But you are right in that it gets increasingly unsustainable over time so stock prices are falling because everyone sees the writing on the wall.
1. This is the result of the business growing - let's not conflate the cause and the effect here.
2. Except they lose money on virtually all other baijiu they sell except maybe BoFen/Qinghua 20 - story for another day. For example, Wuliangye ex-factory price and wholesale price has been backwarddated forever - distributors have made money on Moutai yet, but they're struggling with almost everything else.
3. It's not Moutai if everyone can buy it as they wish - people are not drinking the liquor, they're drinking status.
4. See my previous point - status is luxury. If its a "consumer good" then the pricing power completely and fundamentally changes - that is the premise of Moutai trading at a high value, and why Hermes trades much richer than a Kering. You can't have it both ways. Secondly, I have no clue where you buy your Qinghua 30 but it for sure ain't 1400 RMB. The only thing that can possibly challenge Moutai is the Wuliangye Classic but they did a poor job of commercializing it, so it has not had nearly the impact it could've had.
5. I've made a very clear case of why 15% is likely to be unsustainable in the short to medium term - you should talk to distributors to see on how Q2 performance has been (hint: it's significantly below 15%)