2019 is a major year for Kweichow Moutai's marketing adjustments, with frequent and significant actions. Previously, Moutai's main marketing or sales companies were led by the listed company, but this time the group's marketing company is indeed different, with doubts focusing on the group marketing company competing with the listed company for profits. As a super star in the capital market and the absolute leader in the baijiu industry, Kweichow Moutai's steadily rising stock price suddenly took a hit, losing 110 billion yuan in market value in three trading days, leaving 80,000 shareholders stunned... The parent company establishing a marketing company was initially considered a great event at the group level, but unexpectedly, it sparked doubts and protests among A-share investors. Even some small retail investors called the company and the Shanghai Stock Exchange to complain, and private equity big shot Dan Bin and other institutional investors are also closely watching. In terms of market reaction, institutions have lowered target prices, and foreign capital is heavily reducing holdings, all because Moutai Group is establishing a marketing company. Some investors say 'the purpose of establishing a sales company is as clear as Sima Zhao's heart,' believing that Kweichow Moutai is suspected of transferring benefits, and some investors have even sent complaint letters to the Shanghai Stock Exchange. Private equity big shot Dan Bin also stepped forward to question its legality. Late on May 7, Kweichow Moutai received a regulatory work letter from the Shanghai Stock Exchange. Shanghai Stock Exchange sends letter late at night Late on May 7, Kweichow Moutai Co., Ltd. (600519) announced that it had received a regulatory work letter from the Shanghai Stock Exchange's Listed Company Supervision Department regarding media reports on the company. Investors are concerned that, given the controlling shareholder's establishment of a marketing company with full ownership, whether it plans to fully direct-sell the listed company's Moutai quota, and whether it may form significant related-party transactions. In this regard, the company's controlling shareholder is requested to explain the main considerations for establishing a marketing company at the group level, the planned commercial activities and specific business model, and whether there are plans to operate the listed company's Moutai liquor. The regulatory letter mainly mentions four aspects:

  1. Investors are concerned that, given the controlling shareholder's establishment of a marketing company with full ownership, whether it plans to fully direct-sell the listed company's Moutai quota, and whether it may form significant related-party transactions. In this regard, the company's controlling shareholder is requested to explain the main considerations for establishing a marketing company at the group level, the planned commercial activities and specific business model, and whether there are plans to operate the listed company's Moutai liquor.
  2. The company's controlling shareholder is requested to explain whether it has communicated and negotiated with the listed company regarding Moutai sales, and whether a corresponding plan has been formed. If so, please provide specific arrangements.
  3. The company's periodic reports show that the company's marketing network layout is undergoing adjustments, with a reduction in the number of distributors. Please explain the specific planning arrangements for the listed company's marketing channel construction, and the relationship between the controlling shareholder's establishment of a marketing company and the company's aforementioned 'marketing system adjustment'; and distinguish between the group's marketing channels, the company's own direct sales channels, and distributor channels, etc., and explain the company's plans for various Moutai sales channels in future years.
  4. Please explain whether new related-party transactions may be added between the company and the group marketing company, and the corresponding decision-making procedures and information disclosure obligations that need to be fulfilled. If so, further disclose the transaction type, estimated transaction volume, transaction amount, pricing principles and basis, differences (if any) from pricing with third-party customers and reasons, and prudently assess the impact of new related-party transactions on the listed company's operations and performance. Cause of the incident: Moutai Group Marketing Company inaugurated Let me briefly explain: the Moutai we usually refer to is the A-share listed Moutai Co., Ltd., whose parent company is Moutai Group, holding nearly 62% of shares. On the first working day after the May Day holiday, Guizhou Moutai Group Marketing Co., Ltd. was inaugurated. What kind of company is Moutai Group Marketing Company? First, it is necessary to clarify the relationship between Moutai Group, Kweichow Moutai, and the newly established marketing subsidiary. Moutai Group's full name is "China Kweichow Moutai Distillery (Group) Co., Ltd.", and the A-share listed Kweichow Moutai's full name is "Kweichow Moutai Co., Ltd.". The former is the major shareholder of A-share Moutai, holding nearly 62% of shares. The newly established marketing subsidiary, "Guizhou Moutai Group Marketing Co., Ltd.", is a wholly-owned subsidiary of Moutai Group. Image from Qichacha That is, the newly established subsidiary has no direct relationship with the listed company Kweichow Moutai. So why did it cause a stir? The crux of the problem is that Kweichow Moutai already has a sales company, namely Guizhou Moutai Liquor Sales Co., Ltd. This company is 95% controlled by Kweichow Moutai and is responsible for 33 self-operated companies under Moutai's national self-operated system. Many doubts claim that Moutai Group's move is actually to compete with the listed company Kweichow Moutai for profits by establishing another marketing subsidiary, transferring part of the net profit that should have been expected to enter the listed company to the group level. For small and medium investors, the disappearance of channel price difference profits in the nearly 20,000 tons of incremental volume in the future directly harms investors' interests. According to analysis by Yang Yongsheng's team at China Merchants Securities, Moutai's channel rectification is still ongoing. In the first quarter, the number of distributors for Feitian Moutai decreased by 39. Combined with the 2018 annual report, a total of 476 Feitian Moutai distributors were canceled, corresponding to an estimated quota of over 5,000 tons. Based on current data, the profits are indeed not small. International investment bank Bernstein lowered its target price for Kweichow Moutai from 1,089 yuan to 916 yuan, equivalent to a 15% discount, and downgraded the listed company's rating from "Outperform" to "Market Perform", citing that the parent group's new sales company may harm its revenue and corporate governance. 80,000 investors 'boiling over', Some complain to the Shanghai Stock Exchange According to the official introduction of Moutai Group, the newly established group marketing company will focus on "using increments well, managing existing stock, strengthening control, and coordinating the market", achieving differentiated development with social channels, complementing the original marketing system, and jointly building a marketing system that conforms to the new era and meets the requirements of the times. Next, the Moutai Group Marketing Company will focus on group purchases, supermarkets, and other end customers, achieving differentiated development with social channels, and with "stabilizing the market, stabilizing prices, and stabilizing expectations" as the main goals for the near term, focusing on layout planning, channel construction, and planned distribution to ensure the continued positive development of the Moutai market. The current market controversy focuses on whether, under 100% group control, the group marketing company will fully direct-sell the Moutai quota left by the reduction of distributors from last year to this year, whether this will cause huge related-party transactions, and the corresponding governance structure issues. Netizen @Grid Thinking pointed out, "This change means that Moutai's channel flattening will be led by Moutai Group, and the rich benefits of the channel will be completely taken away by Moutai Group. Previous expectations of profit growth from Moutai's channel reform will basically fail... Besides intercepting profits, can they really manage the channel well? So, it is currently impossible to judge whether this event has widened or narrowed Moutai's moat, but it is inevitable that small shareholders' interests will be harmed." Netizen @Oil Paper Umbrella's Rainy Alley said, "The listed company is already building its own direct sales channels, no need to go through the major shareholder's hands. This is clearly a public robbery of the listed company's interests. This move has seriously affected the interests of small and medium shareholders of the listed company, so it's not an exaggeration to call it robbery." Netizen @Aosan also believes, "Transferring part of the net profit expected to enter the listed company to the group level is a bad move. Moutai Group is the largest shareholder of the listed company, yet it still competes with the listed company for profits." A Weibo user named "Moutai 900 yuan is really not high" even called Moutai Co., Ltd. to question, and also sent a complaint letter to the Shanghai Stock Exchange's public hotline under his real name. The investor believes that Moutai liquor is currently in short supply. Nationwide supermarkets have to fight tooth and nail to get distribution rights, but Guizhou Moutai Group Marketing Co., Ltd., because it is a subsidiary of Moutai's major shareholder, can easily obtain exclusive distribution rights for more than 10 times the sales volume without any bidding process, which is clearly benefit transfer and related-party transactions. In response to the investor's call, Fan Ningping, board secretary of Kweichow Moutai Co., Ltd., said: "If the transaction amount exceeds the amount that the board of directors can decide, then an extraordinary general meeting will be convened, and the major shareholder will abstain. We will follow the rules." As for shareholders' doubts, Dan Bin, a staunch supporter of Moutai, also partially endorsed the comments. He said he agrees with the disappearance of channel price difference profits in the nearly 20,000 tons of incremental volume. Regarding "future Moutai price increase momentum will dry up, and the larger the price difference, the richer the group's profits", he said it will not be affected. Moutai distributor 'purge' questioned Investors' concerns about Moutai swallowing channel profits are fermenting. Some investors have turned to Moutai's price increase space, analyzing the space between the current ex-factory price of 969 yuan and the future price of 2,400 yuan, which is the huge space for Moutai's future profit growth. Assuming that in 2023, each bottle of Moutai brings 900 yuan in profit to the listed company, and sales of Moutai reach 94.3 million bottles in 2023, this would result in annual profits of 85 billion yuan. Some investors have proposed that the biggest problem with the marketing company may be the continuous damage to Moutai's long-term interests. For the group, the lower the ex-factory price, the more beneficial it is, so it completely loses the motivation and interest to continue raising prices. As the group's interests in the channel grow, Moutai's long-term price increase momentum will continue to weaken, and the era of weak price increases may be coming. Regarding the newly established marketing company, Zhu Danpeng, an analyst in the Chinese food industry, told Interface News: "Moutai's marketing company has two functions: First, new retail and new marketing have become methods for many enterprises to develop new marketing ideas and layouts; Second, this can reduce distributors' control over the entire channel, making the entire TO C end better, and will have a good effect on stabilizing, guiding, and benchmarking the price chaos of the entire product. Secondly, Moutai is now a hard currency, and its dependence on distributors is very low. Now the key is to increase the value, raise the brand height, and reduce channel chaos." Will the continuous market actions change Moutai's marketing model? Zhu Danpeng told Interface News: "This is just a precise channel segmentation, and it has no major impact on the overall situation. It just optimizes and improves this part. Therefore, I am very optimistic." Regarding distributor chaos, in June 2018, the WeChat account of the Guizhou Provincial Commission for Discipline Inspection and Supervision published that Tan Dinghua, former member of the Moutai Group Party Committee and former deputy general manager and financial director of Moutai Liquor Co., Ltd., was suspected of serious disciplinary violations and was subject to organizational review. It stated that from 2006 to 2015, Tan Dinghua used his positions as a member of the Moutai Group Party Committee and deputy general manager of Kweichow Moutai Liquor Co., Ltd. to help more than 10 companies become Moutai Group's Moutai distributors and suppliers, accepting property worth over 34.6 million yuan and a 200-gram gold bar. At the 2018 distributor conference, Li Baofang, Party Secretary and Chairman of Moutai Group and Chairman of Kweichow Moutai, proposed that Moutai faces new tasks, mainly to straighten out and improve the marketing system, and roughly 100 distributors will be disqualified. In the coming period, Moutai will no longer add new specialty stores, special distributors, or general distributors. At the same time, Moutai will focus on expanding direct sales channels and promoting marketing flattening. Before the establishment of Moutai Group Marketing Company, Kweichow Moutai had established the Moutai Cloud Mall platform in September 2017, in addition to its Tmall flagship store. At that time, it strictly required its more than 2,800 distributors to open Moutai Cloud Mall and sell more than 30% of their unexecuted contract volume through the platform. Distributors whose platform transaction volume did not reach 30% would have their 2018 contract plans reduced proportionally. However, on May 7, when an Interface News reporter logged into Moutai Cloud Mall and selected 53-degree Feitian Moutai for purchase, it showed "insufficient inventory". The sales model of "flattened regional distribution as the main, company direct sales as a supplement" has appeared multiple times in Kweichow Moutai's financial reports, and it is clear that direct sales efforts will continue to strengthen. What do you think of Moutai Group's establishment of a marketing company? Source: Together Learn Private Equity Tips will be paid 400-2000 yuan once adopted China FMCG + Internet Professional New Media Committed to FMCG manufacturers' transformation and upgrading and channel digital solutions