Kweichow Moutai Under Regulator Radar Following Drastic Company Changes

Kweichow Moutai
Moutai Wine in an auction at the Grand Hyatt Hotel (Photo: HunagnTwuai / Wikimedia Commons)

China's biggest and the world's most valuable distillery is reportedly now under the radar of regulators following a sales strategy implemented by its new chairman.

Kweichow Moutai, the company that produces the country's popular Moutai liquors caught the attention of regulators after its parent company Moutai Winery Group decided to establish its own sales network that directly sold products to customers.

The Shanghai Stock Exchange reportedly sent a letter to the partially state-owned company this week, asking it to explain why it had established its own sales network, which threatens to cut its 3,000-strong sales team. The exchange's letter was likely a response to public outcry over the firm's policy changes, which had negatively affected its stock prices.

The firm, which also produces and sells various beverage, food, and packaged items, experienced a drastic drop in its share prices.  Moutai's shares dropped by more than 12 percent in just three days, essentially wiping out $21 billion in its overall market value.

According to reports, the newly established sales company would basically take over Moutai's sales quota, taking it out of the equation for the listed company.

The move was reportedly initiated by the firm's chairman and interim president Li Baofang, who has been trying to reverse the work of his predecessor Yuan Rengou. Li is also planning an overhaul of the company's strategies, which includes a renewed focus on its premium brands.

One of Li's plans to improve the company's bottom line was to reduce its number of sales agents and intermediaries by selling directly to its customers.

The only problem with the strategy is that revenue that would otherwise be credited to the company is now diverted to the listed firm's state-owned unlisted parent company. The strategy did not bode well with investors, as it would essentially undermine the firm's sales numbers as it would now go to its controlling shareholder.

Moutai's A Shares, which are listed on the Shanghai Stock Exchange, is one of the leading blue chip shares on the Chinese market. Its shares are often used as a benchmark index, given that it is the fourth largest on the Shanghai Composite Index and the second biggest stock on the CSI300. Moutai is one of the very few stocks on the market that is traded above $80.

Moutai and its products are iconic to the country given its history and its role in the country's traditions. The firm's Baiju, made from distilling fermented sorghum, was even the favorite drink of the late Chairman Mao Zedong. The drink is also a staple in large banquets and a favorite of the country's elites. A 1957 edition of the drink was sold for $320,000in an auction last year, holding the record as the most expensive spirit ever sold.

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