Bloomberg Businessweek USA - January 25, 2018

17

QILAI SHEN/BLOOMBERG; DATA: COMPILED BY BLOOMBERG

○Moutai,theworld’smosthighlyvalued

distiller,can’tmakeenoughofitsfieryspirits

China’s Liquor Giant

Needs More Booze

You know you’re in Maotai when you smell it. The

picturesque town of about 100,000 in southwest-

ern China is home to the world’s most valuable

liquor company—and the soy sauce-like scent of the

Chinese grain alcoholbaijiumade by Kweichow

Moutai Co. permeates the main street. But inside

the liquor stores along the road, the distiller’s main

brands are sold out. Lines form wherever bottles

THE BOTTOM LINEGeneric drugmaker Endo has agreed to

pay billions of dollars in settlements for vaginal mesh suits—and

possibly faces much more for testosterone and opioid claims.

are available. The buying frenzy and resulting

inventory shortages extend nationwide.

Moutai baijiu’s fiery flavor and potential to

appreciate in price are driving the insatiable thirst.

Demand has pushed the company’s market value

to more than $145 billion, well past that of British

whiskey giant Diageo Plc, owner of such popu-

lar brands as Johnnie Walker and Smirnoff. The

Chinese company sells each bottle of its main Flying

Fairy brand to distributors for 969 yuan ($150) and

sets a suggested resale ceiling of 1,499 yuan, yet

they routinely go for double that online and off. Its

website is out of stock. On Chinese e-commerce site

JD.com, a 500 milliliter bottle of 80-year-old Flying

Fairy is listed for 207,999 yuan.

Chinese buyers say they like Moutai’s baijiu

for its complex flavor and a purity that prevents

hangovers—but the company’s special manufac-

turing process also puts limits on production. The

grain and water used to make it must come from

Maotai, and the brew must be buried in urns for

at least four years before it’s sold.

All that gives Moutai’s chairman, Yuan

Renguo, the difficult task of sustaining growth

even as his company literally runs out of

liquor. He says the answer will lie partly

in introducing more ultrapremium and

may wind up facing, they may have no choice but

to ask the bankruptcy courts to help them dispose

of those cases,” he says.

Campanelli has heard the B-word before. “The

use of the word ‘bankruptcy’—it’s not something

that we’re contemplating at this point in time,”

he says. “We’re looking to collaborate to deal

with the opioid situation. If we ever got to that

process, and I’m not saying that we’re thinking

of it, it would be years and years before we would

be addressing it.”

It’s also possible that any opioid manufacturer

settlement could be structured in such a way that

Endo doesn’t end up underwater. “There could be

some giant master settlement—it would just make

life that much more difficult for Endo, but I don’t

think these state AGs are going to make Endo go

out of business,” says Gabelli’s Kedra.

Despite the financial and legal clouds, Endo

officials say they’re concentrating on expand-

ing the business and working on new injectable

drugs. The company is also developing one of

its key products, Xiaflex, which is used to treat

a hand deformity and curvature of the penis, for

new uses such as improving the appearance of

cellulite. Cosmetic drugs, such as Allergan Plc’s

Botox, have turned into powerhouses for pharma

companies, and Campanelli has been praising

Xiaflex’s prospects. “It fits the model of the new

Endo,” he says. Campanelli, however, still has

plenty of problems from the old Endo to fix first.

—Cynthia Koons and Jef Feeley

 Arranging bottles

at Kweichow Moutai’s

factory in Renhuai

 Grain is prepared at

the company’s distillery

in Guizhou

○ Moutai’s 2016 revenue

5.3%

Rest of

the world

94.7%

China

 BUSINESS Bloomberg Businessweek January 29, 2018