Kweichow Moutai at a store in Chengdu. (Photo/Xinhua)
Chinese "national liquor" brand Kweichow Moutai has temporarily suspended contracts with three dealers for the sale of its products and confiscated 20% of their guaranteed deposits. The distiller has also issued a warning to these dealers as they were found selling the company's liquor across different regions at prices lower than permitted.
Kweichow Moutai issued the directive on Dec. 18 at a dealers' meeting, where it reiterated that the retail price of 53 degree Feitian Maotai liquor should not be fixed below 1,519 yuan (US$244) per bottle and that group shopping prices should not be set below 1,400 yuan (US$225) per bottle. A month later, the company imposed fines on dealers.
"Currently, the prices have been fluctuating and this is expected to affect the prices during the Lunar New Year (in February). If the prices during the Lunar New Year fail to be stable, this could affect the prices for the whole of 2013," a company spokesman said.
An industry insider said given the huge inventory pressure, wholesale prices of maotai liquor in some regions were hovering around 1,000 yuan (US$161) per bottle.
Citing the company notice to the three dealers in Chongqing, Tibet and Guangxi, Guangzhou's Southern Metropolis Daily reported that the dealers had been fined for pricing the company's liquor poorly and for selling outside of their licensed area.
Since the violations were committed prior to the meeting, only minor penalties were imposed, the company said in the notice, adding that if these three dealers committed these violations again, the company would terminate their contracts permanently.
The company also ordered the three dealers to recall their liquor within three days of receiving the notice. It also demanded that the dealers make amends in accordance with the retail guidance prices within seven days of receiving the notice.
Kweichow Moutai said it will consider picking up the three contracts again only after the parties involved had made the required corrections and passed investigation and verification from the company.
However, the fines handed out to the three dealers demonstrates Kweichow Moutai's unsustainable pricing system, an industry expert said, adding that wholesale prices of the liquor in some regions were hovering around 1,000 yuan (US$161) per bottle.
"If a majority of people violated the rules, then this shows the punishment was not effective. However, the company has no choice but to punish some dealers to slow price falls," the expert added.
Due to soaring retail prices of 53 degree Feitian Maotai liquor before 2012, the company had issued an order intended to curb the prices from rising further. However, retail prices had touched a high of more than 2,000 yuan (US$321) in late 2011.
The price of the liquor depended on supply and demand relations and with supply surpassing demand, retail prices were likely to drop, the expert said.
The supply of Kweichow Moutai's products was estimated to have increased by 1,000 tonnes in 2012, while its consumption was estimated to have fallen by 2,000 tonnes, resulting in surplus inventory.
In addition, the economic downturn and the central government's ban on buying liquor with public funds could also adversely affect the consumption of high-end liquor this year.