Recent reports have highlighted a concerning trend in the alcohol market, particularly for the prestigious Chinese brand known as “Flying Fairy.” The brand, which is a traditional Chinese baijiu liquor, has seen a significant decrease in wholesale prices in recent weeks, sparking worries about the overall economic growth. This drop in prices comes on the heels of a remarkable surge in prices between 2015 and 2021, during a boom in housing prices. Analysts have noted that the wholesale prices for Flying Fairy have plummeted by more than 30% since reaching a peak in September 2021.
It is interesting to note that despite the decline in prices, the company behind Flying Fairy, Kweichow Moutai, has managed to maintain wide profit margins. Analysts believe that the company still has room to raise its ex-factory prices, which could potentially offset the impact of falling wholesale prices. While some investors remain optimistic about the future prospects of Kweichow Moutai, others have expressed concerns about the potential long-term effects of the price drop on the company’s earnings.
The stock market dynamics in China have been shifting in recent years, with companies in sectors like copper, coal, and crude oil outperforming traditional market leaders like Kweichow Moutai. This change in market leadership has raised questions about the impact of falling alcohol prices on the company’s overall standing. While some investors view the decline in prices as an opportunity to buy undervalued stock, others are more cautious about the implications for the future.
Despite the recent challenges, some analysts remain bullish on the prospects of Kweichow Moutai. The company’s new chairman has emphasized the importance of maintaining strong relationships with distributors and enhancing the brand’s reputation. This focus on brand power and effective operations has led some financial institutions to maintain their buy ratings on the stock, with price targets well above the current market value.
Looking ahead, analysts anticipate that wholesale prices for Flying Fairy could increase in the coming months, especially with major Chinese holidays on the horizon. The second quarter is traditionally a weak period for baijiu demand, but promotional activities and efforts to attract younger consumers could help offset some of the challenges. However, the decline in demand from weddings due to traditional beliefs about auspicious years could continue to impact sales in the short term.
The recent price drop for a prestigious Chinese alcohol brand has raised concerns about economic growth and market dynamics in China. While some investors see this as a buying opportunity, others are more cautious about the long-term implications for the company’s earnings. The changing landscape of the stock market and evolving consumer trends will likely continue to shape the future of the alcohol industry in China.