Who is the world’s major drinks company?

Financial markets are buzzing with excitement: Kweichow Moutai could take the crown from Diageo as the most valuable drinks company this year. After a heady share price rally in 2016, when its stock climbed 53 percent, the market capitalisation of Kweichow Moutai stood at USD 63 billion on 11 January 2017, only a few billion behind Diageo’s at USD 66 billion.

Who on earth is Kweichow Moutai you may ask? It’s China’s major producer of

baijiu, a sorghum-based spirit which may also contain wheat, rice and corn.

Baijiu is not a uniform product. Experts say it’s a class of spirits with many categories, akin to whiskey with its range from Scotch to bourbon. But unlike whiskey, which is fermented in a liquid state, baijiu is more or less dry fermented inside in-ground pits. It then is steam distilled several times in goose-neck stills, aged in massive terra-cotta vessels, then finally blended.

It is usually bottled at around 100 or 120 proof (well above the typical 80 proof for vodka, gin, etc.) and is classed by aroma, such as “light”, “rice”, “strong” and “sauce”, it was pointed out. But these labels aren’t all that helpful to westerners.

Typical reactions from western first-timers are that it smells and tastes like blue cheese, mushroom or soy sauce - certainly not appealingly.

High-end baijiu is extremely profitable for its producers. The top four distillers in China, including Moutai and Wuliangye, are estimated to account for 27 percent of the spirits profit pool (EBIT) according to estimates by the Bernstein Global Spirits Guide published this month.

Small wonder, in 2015 the state-controlled Kweichow Moutai had an operating margin of 65 percent and a net profit margin of 47 percent on a turnover of USD 5.1 billion.

This makes Moutai baijiu a pricey tipple. Its signature white bottles with the red and golden label retail for USD 178 in China (500 ml), EUR 130 to EUR 150 in Germany and AUD 289 (USD 216) in Australia.

After years of rising sales, 2012 marked a turning point for the baijiu industry when the Chinese government introduced anti-extravagance measures which restricted luxury spending and consumption. Baijiu’s total turnover was over USD 90 billion then. After a steep decline and some recovery, China’s Baijiu market reached USD 56 billion in 2016 (Euromonitor).

With Kweichow Moutai’s profits expected to rise in the two digits this year, the Chinese distiller could inch even closer to Diageo in value.