CHINA’S love of a fiery grain liquor made Kweichow Moutai Co. the world’s most valuable alcohol distiller, and the company’s approach has been to milk that demand for all its worth.

But now a change in leadership is bringing a U-turn in Moutai’s strategy. Li Baofang, the new chairman of parent Kweichow Moutai Group, is rolling back the efforts of his predecessor, Yuan Renguo, who quietly departed the company last May after 18 years at the helm.

Li is seeking to re-focus Moutai back on its cash cow. Subsidiaries that make alcohol for non-premium brands are being shut down, and a customization business that allowed big-spending clients, like casino operators, to emblazon Moutai’s bottles with their own logos is being halted, according to sources.

Suspicion a system of kickbacks had developed between liquor distributors and some of these units helped trigger the shift, according to the sources.

Moutai’s Feitian, or Flying Fairy in English, is the king of China’s baijius. Made with local stream water and fermented sorghum in a mountain village, production hasn’t been able to keep up with demand. While that’s added to the liquor’s cachet, it’s put the company in a challenging position when it comes to growth. Moutai can’t just hike prices because of government restrictions on the cost of high-end alcohol in China.

Former chairman Yuan’s solution was to diversify and trade off the Moutai name. Feitian and the ultra-premium baijiu lines run by the company’s Shanghai-listed arm are a must-have symbol of wealth and power on the banquet tables of China.

Yuan sought to grow the customization business, which made HK$6,000 (US$765) bottles of personalized Feitian for gambling junket operators in Macao. The company introduced a raft of brands and sub-brands separate to the premium lines and Yuan also had plans for a less-expensive line of baijiu, which means white liquor, named Xijiu.

But the new guard — Li took over last May — has shut down subsidiaries, including one called Baijin Liquor, diverting some of their production lines to Moutai’s core brands and leaving hundreds of workers idle, according to the sources.

Kweichow Moutai Co. has more than doubled in value over the past two years, after leapfrogging Diageo Co. — the maker of Johnnie Walker whiskey and Smirnoff vodka — in 2017. Thanks to soaring demand for Feitian, Moutai’s gross profit margin has held around 90 percent for more than a decade, and the listed arm contributed 78 percent of the wider group’s revenue of 40.8 billion yuan (US$6 billion) in 2014. That’s expected to rise to 86 percent of the projected 100 billion yuan in sales this year.

The brand cull was aimed at protecting that flank. Some subsidiaries were causing “serious and negative impact to Moutai’s reputation,” according to an internal company document from February announcing the shutdowns and verified by sources familiar with the company’s activities.

Moutai suspects distributors were paying kickbacks for the right to operate and distribute those subsidiary brands, tarnishing the company’s image, the sources said.

Li is trying to streamline the alcohol giant as smaller rivals like Wuliangye Yibin Co. muscle in on the baijiu trade and Chinese consumer demand ebbs amid a slowing economy.

Moutai cut more than 400 of its 3,000 distributors throughout China in recent months, according to its annual report published in March. For the first time, Mouta is signing contracts directly with retailers, issuing a tender last month for six supermarkets to carry its stock. This week, it announced the opening of a new in-house unit that will sell Feitian and other core brands directly to customers, bypassing distributors. (SD-Agencies)