Alcohol consumption, even over-consumption, carries a certain air of respectability in China. Important businessmen and great poets alike are expected to hold their liquor. But in recent months, boozing has gotten a bad name. As government officials run up the bar tab, the public has wondered “who can change China’s banquet culture?” The answer has been a year-long crackdown on liquid consumption as part of a long-running anti-corruption campaign. When will the hangover end for China’s baijiu industry? 

In 2012, high-proof spirits saw serious stock drops. Industry leader Kweichow Moutai year-end figures showed growth slowing 20-plus percentage points in 2012. To be fair, that equates to a drop from 73% net profit growth in 2011 to “only” 50% for 2012. More troubling for Moutai and rival Wuliangye, 2013 promises more of the same: Moutai trimmed nearly RMB 10 billion from the company’s projected 2013 sales and Wuliangye expects sales revenue growth to drop from 50 to 30%. To add scandal to slowdown, 2012 saw the Chinese Liquor Association answering concerns about cancer-causing plastics in the national drink, and now Moutai faces allegations of misleading consumers about “organic” ingredients.

Just how bad is the state of baijiu? Hard to say. Like other luxury goods, it is difficult to know the severity of the downturn. Luxury good manufacturers conspire with customers to keep purchases legal (i.e. off the books). Buyers don’t want the authorities to know they’re buying, distributors want to hide inventory issues from manufacturers and the companies themselves want to maintain face (and high sticker prices). Incentive for subterfuge makes exact figures hard to come by, but the connection between gift giving, banquet culture and financial returns is not incidental: stock prices for luxury hooch fall with anti-corruption pronouncements. Buyers of pricey baijiu are understandably moving on to sleeker, less visible luxury products.

Anti-corruption campaigns in China come and go, but the aftertaste of today’s crackdown becomes worse when you consider baijiu demographics. The next generation of baijiu drinkers is opting for other spirits. Granted, most Chinese drink comparatively more in middle age, and grad school beers could turn into board room baijiu. But the kids might wait awhile for their first sip: young consumers have been priced out. In a race to the top among premium baijiu brands, prices have jumped 100 and 200% just during 2012. ￥8 in the mid-80s meant a good bottle of Kweichow Moutai. 2013? RMB 2,500. Trendy, nontraditional Western spirits with similar cache sell for far less. China’s upwardly mobile drinking outside of the military-industrial complex, meanwhile, are increasingly fond of Western spirits and wine. Baijiu remains king, but with diminished public finances for banquet orders, brands will have to work harder to attract (non-government) high-end drinkers.

If Chinese drinkers won’t (or won’t be allowed to) drink baijiu, can foreigners shoulder more of the burden?  A few factors make baijiu a tough overseas sell. To start with, baijiu’s strong flavor is an acquired taste, one unlikely to captivate and capture new markets anytime soon. Most baijiu companies brand themselves accordingly, using adverts emphasizing history with calligraphy and dragons, themes unlikely to appeal to anyone beyond the natives. For the foreseeable future, the largest customers will remain members of the Chinese government and military, both currently discouraged from imbibing. The secret recipe for improved sales may be a new mix of marketing channels and more affordable offerings. It has been long winter for the baijiu industry, and, like others in China, the pain will not end until political rehabilitation is over.

Image source: Nipic