China's Liquor Giant Needs More Booze

Moutai, the world’s most highly valued distiller, can’t make enough of its fiery spirits

- Rachel Chang and Daniela Wei

You know you’re in Maotai when you smell it. The picturesque town of about 100,000 in southwestern China is home to the world’s most valuable liquor company—and the soy sauce-like scent of the Chinese grain alcohol baijiu made by Kweichow Moutai Co. permeates the main street. But inside the liquor stores along the road, the distiller’s main brands are sold out. Lines form wherever bottles are available. The buying frenzy and resulting inventory shortages extend nationwide.

Moutai baijiu’s fiery flavor and potential to appreciate in price are driving the insatiable thirst. Demand has pushed the company’s market value to more than $145 billion, well past that of British whiskey giant Diageo Plc, owner of such popular brands as Johnnie Walker and Smirnoff. The Chinese company sells each bottle of its main Flying Fairy brand to distributors for 969 yuan ($150) and sets a suggested resale ceiling of 1,499 yuan, yet they routinely go for double that online and off. Its website is out of stock. On Chinese e-commerce site JD.com, a 500 milliliter bottle of 80-year-old Flying Fairy is listed for 207,999 yuan.

Chinese buyers say they like Moutai’s baijiu for its complex flavor and a purity that prevents hangovers—but the company’s special manufacturing process also puts limits on production. The grain and water used to make it must come from Maotai, and the brew must be buried in urns for at least four years before it’s sold.

All that gives Moutai’s chairman, Yuan Renguo, the difficult task of sustaining growth even as his company literally runs out of liquor. He says the answer will lie partly in introducing more ultra premium and customized products that capitalize on the brand.