"De-Financialization: Moutai's Path to New Equilibrium"

Due to lackluster sales and speculative drives triggered by e-commerce promotions, the wholesale price of Feitian Moutai has shown a rapid downward trend, leading to changes in market expectations for the price of Moutai liquor. In reality, "affordable" Moutai is still hard to come by, and the fluctuation of "premium" Moutai prices is more a process of its de-financialization.

A single-day wholesale price drop of nearly 200 yuan per bottle is a rare phenomenon for Feitian Moutai. After a continuous decline, the market price of Feitian Moutai approaches 2,200 yuan per bottle, while around the Spring Festival, its price was still around 2,700 yuan per bottle. For Kweichow Moutai, a roughly 20% decrease in the terminal price has no impact on the company's revenue; the decline in Moutai's wholesale price is more a process of de-financialization.

After the Spring Festival, there were two instances during the decline of Feitian Moutai's terminal price that attracted concentrated market attention. One was in April when Xunfeng liquor was launched, causing Feitian Moutai to break below 2,600 yuan per bottle. The other was during the Dragon Boat Festival and the 618 promotion, which led to a loosening of Feitian Moutai's terminal price and a more noticeable price drop.

Currently, the liquor industry is performing modestly, with overall demand still under pressure in the short term. Coupled with the recent downward trend in Moutai's wholesale price, market pessimism about liquor demand has begun to spread again. Fluctuations in Moutai's wholesale price have a minimal impact on the company's performance, but they do affect the valuation of Kweichow Moutai.

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The stability of Moutai's wholesale price requires addressing both demand and supply issues. Demand depends on the macro environment, while supply depends on the product launch structure and channel structure of Kweichow Moutai, as well as the control of the launch pace. As some of Moutai's "financial demand" exits, the real demand and supply can achieve stability.

Price Downward Trend

On June 14th, the latest price disclosed by Today's Liquor Price showed that the wholesale reference price for Feitian Moutai (loose bottles) fell from 2,420 yuan per bottle the previous day to 2,230 yuan, a single-day drop of 190 yuan. The wholesale reference price for the original box of Feitian Moutai also fell from 2,695 yuan per bottle the previous day to 2,550 yuan per bottle, a single-day drop of 145 yuan.

Before the Dragon Boat Festival, although the price of loose Feitian Moutai also fell, the decrease was not significant. Starting in mid-June, the price of loose Feitian Moutai began to accelerate its decline, with a drop of about 10%. Moreover, a single-day drop of nearly 200 yuan is very rare for Feitian Moutai.

In fact, since the Spring Festival, the price of Feitian Moutai has been in a slow downward trend. Around the Spring Festival, the wholesale reference price for Feitian Moutai (loose bottles) was around 2,700, but until mid-March, there was no significant change in the price, and the drop was essentially negligible.

From late March, the price of loose Feitian Moutai began to decline, and it took about 20 days to reach the latter part of early April, when it broke below 2,600 yuan per bottle. At this time, one of the triggers for the decline in Feitian Moutai was the launch of Xunfeng liquor.Around the time of the launch of Xunfeng liquor, the price of Feitian Moutai per bottle fell from 2700 yuan to below 2600 yuan, and Guizhou Moutai was also affected in the secondary market, with its stock price weakening. About a month later, on May 20th, Feitian Moutai broke through the 2500 yuan mark.

As the price of loose Feitian Moutai decreased, the prices of original case Moutai, aged Moutai, and others also fell to varying degrees. After falling near 2200 yuan, as of June 18th, the decline of Feitian Moutai temporarily came to an end, with prices temporarily stabilizing, but still not reaching 2300 yuan.

As one of the few liquors whose terminal prices do not invert, Feitian Moutai has an anchoring effect on the industry. The wholesale price of Feitian Moutai is falling, but in the terminal market, the situation of a bottle being hard to find has not changed. So, what caused the downward trend in the price of Feitian Moutai?

The two main levers of supply and demand

In the terminal channels, Feitian Moutai is not cheap. During the e-commerce "618" promotion period, on the JD platform, the single bottle price of Feitian Moutai was 2579 yuan. On JD International, the single bottle price of Feitian Moutai (overseas version) was 2345 yuan. Of course, compared to before, this price is already a discounted price. A month ago, the price of Feitian Moutai was about 2700 yuan per bottle, and it was common for each bottle to exceed 3000 yuan in the second half of 2023.

In the Tmall supermarket, the single bottle of Feitian Moutai overseas version is now reduced to 2279 yuan after the discount. After entering 2024, its price has been mostly above 2300 yuan. On another e-commerce platform, Pinduoduo, Feitian Moutai has already dropped to 2250 yuan.

Even so, this obviously exceeds the 1499 yuan/bottle market guidance price set by Guizhou Moutai. Compared with the ex-factory price of 1169 yuan/bottle for Feitian Moutai, the "premium" has basically doubled, and the channel profit is still very substantial. The "affordable" Moutai at 1499 yuan/bottle relies more on luck to grab or draw lots on various platforms.

It is difficult to find a bottle of "affordable" Moutai, and the price of "premium" Moutai is going down. In the absence of significant changes in supply, the possibility of changes on the demand side is greater. Prices are determined by supply and demand. Compared with the relatively autonomous and controllable supply, the variability of demand is more difficult to control.

Affected by the macro economy, the overall demand for the liquor industry still has short-term pressure. Shenwan Hongyuan pointed out that if the external environment does not show a significant improvement, it is expected that there will still be some pressure on the fundamentals of the liquor industry in the second half of the year.

Tracking data shows that most brands' Dragon Boat Festival payment progress is on par with or slightly lower than the same period in 2023, mainly due to increased demand pressure and increased financial pressure on distributors. The Dragon Boat Festival sales performance is weak, and from the perspective of consumption scenarios, mass consumption performs the best, while business and banquet demand has declined. From the perspective of price bands, high-end and sub-high-end demand is weak, and mass consumption price bands perform better.This means that the lackluster performance in business banquets and similar events is the main reason for the subdued consumption of Moutai liquor. Guotou Securities also stated that not all holidays are peak seasons for baijiu consumption, with consumption showing a characteristic of "no spending unless necessary." The peak season relies more on scenarios and gatherings of people, and the downturn in business activities leads to a lackluster consumption during the off-season.

Guotao Securities believes that the current main contradiction lies in weak demand. After the direct sales system and non-standard products no longer have a high price difference, scalpers no longer play the role of distribution channels. Consequently, the corresponding products find it difficult to effectively reach consumers, leading to irrational pricing.

For products like non-standard items with niche consumption scenarios, after a surge in supply, the imbalance between supply and demand becomes severe, leading to a decline in wholesale prices. After the narrowing of profit margins, the scalper system cannot operate, further exacerbating the contradiction between actual supply and demand. The resolution of subsequent wholesale price issues requires action on both the demand and supply sides.

Guizhou Moutai has already begun to make changes to supply. In response to the recent decline in wholesale prices, Shenwan Hongyuan pointed out that the main reason for the decline in wholesale prices is the increased volume of earlier releases, including direct sales channels and small-batch products. The company has taken regulatory measures and is expected to have a limited downward space. The channel still has confidence in the stability of Moutai's prices.

According to reports, Guizhou Moutai has suspended the corporate application policy of 1499 yuan per bottle of Feitian in many places. Moutai also announced that its Xunfeng liquor will undergo optimization work after the trial operation period ends on June 19. At the same time, the synthesis and exercise rights of Xunfeng liquor's digital collectibles will also be suspended.

De-financialization

The scarcity attribute of Moutai makes it not only a beverage but also a financial product for many investors, which invisibly gives Moutai a financial attribute.

From the perspective of financial product attributes, it is not surprising that the value of various assets is re-evaluated under the pressure of the overall macro environment. Compared with other asset prices, Moutai's prices have already shown relative resilience.

The decline in Moutai's wholesale prices has raised concerns in the secondary market. Since reaching a phase high on May 7, Guizhou Moutai's stock price has continued to decline. As of June 14, the company's stock price has fallen by more than 10%, and its market value has broken through 2 trillion yuan. This indicates that the market is worried about the phenomenon of financial attribute backlash, that is, the expectation of price reduction not only weakens investment demand but also prompts some collected products to be released in the market, thereby further suppressing Moutai's prices.

The decline in the price of Feitian Moutai has both short-term reasons for the mismatch between supply and demand. As mentioned earlier, the price sentiment impact brought by the launch of Xunfeng liquor in early April, and during the "618" promotion period, speculators mainly driven by speculative demand suffered price shocks, and the price fluctuations caused by the sell-off.End-user demand is not the main cause of price fluctuations in Feitian Moutai; speculation plays a more significant role. Therefore, Galaxy Securities points out that the consumption demand for Moutai is stable, with some "financial demand" exiting the market. The decline in the price of Feitian Moutai this round is more of a process of de-financialization.

Similar to the decline in prices of other assets such as real estate, some financial demands for investment and collection tend to exit as prices trend downward, while the portion of consumer demand remains stable. For instance, the wholesale price of Feitian Moutai between 2020 and 2021 remained relatively stable because the majority of consumers' habit is to store new wine for 2-3 years and then consume it when the taste is better.

Apart from Feitian Moutai, which has financial attributes, from other high-end liquors in the thousand-yuan price range to the sub-high-end and mass-market liquor sectors, there has been no fluctuation following the decline of Feitian Moutai. This is because these products are essentially consumer-oriented, with weaker investment and collection attributes. After experiencing a decline in the early stages, their prices and demands have been essentially stable.

The financial attributes of Moutai liquor result in a significant premium compared to other high-end liquors. In terms of phased price impact, the investment attribute's influence on Moutai's price is no less than that of the consumption attribute, or rather, the investment demand has a more direct impact on the price of Moutai liquor.

Thus, on one hand, "affordable" Moutai is hard to come by, while on the other hand, the price of Moutai liquor with investment attributes fluctuates. Speculation exiting and price decline will bring new demand, and the price of Moutai liquor will reach a new equilibrium.