The Easiest Company in the World to Run


If you could be the boss of any company in the world, with your pay package completely tied to performance, which would you choose? If you answered Kweichow Moutai Ltd., congratulations. You couldn’t have made a better choice.

For those who don’t know this company, it is the largest and by far most successful distiller of China’s favored prestige alcoholic drink. There is no faster-growing, large spirits company anywhere in the world. Better still, if you do become boss, there’s just about nothing you could do short of outright criminality that would in any way slow its stupefying growth rate.  In 2010, sales rose by about 20% to over $2.2 billion. So strong and constant is the demand for the company’s product that their major headache is preventing designated retailers from raising the price above the already sky-high levels fixed by the company.

During 2010, the street price of a bottle of Moutai’s highest-end brew, called Feitian, doubled from Rmb 700 ($105) to over Rmb1,300 ($200). The raw material cost? Probably under Rmb10 per bottle.  Getting a fix on its real level of profitability is hard to do. But, in my estimation, there is no more profitable liquid mass-produced anywhere in the world. Make no mistake. Moutai is not 25-year-old Courvoisier. Chinese love the stuff. But, it is a species of what Americans would call “rockgut”, distilled from a low-end grain called sorghum and then diluted with water drawn from springs surrounding the distillery in Guizhou province.

When I first came to China 30 years ago, a bottle of Moutai cost no more than a few dollars. It’s the same stuff today, brewed according to a Qing Dynasty formula. The main difference is that over 30 years, the price has gone up 30-fold. And no, that’s not because sorghum prices have skyrocketed.

So, what explains Moutai’s astounding success? Simple math. More and more Chinese chasing an insufficient supply of the country’s highest-end liquor brand. Consumption of bottled liquor has grown by 20% over the last five years, and shows no sign of slowing. Moutai plans to double its output over the next four years, then double it again by 2020. Overall, the plan is to increase output by 2.5 times in next nine years.

At the start of the year,  Moutai put in a price cap, to try to stop its retailers selling Feitian for over Rmb959 a bottle.  The price immediately shot up over Rmb1,200. Seeing the Moutai fly off the shelves, retailers then imposed limits on the number of bottles a customer could buy at one time. Supply restricted, the price just kept climbing.

Packaging and marketing are pretty much unchanged over the last 30 years. Along withTsingtao beer, it’s one of the few branded products in China to stick to the old and clumsy pre-revolution spelling of its name. The company is called Kweichow Moutai but no one knows it under that name. In China, it is pronounced “Gway-Joe Mao-Tai”.

Good, bad or indifferent, whoever is the CEO of this company (the current incumbent is Yuan Renguo) will certainly succeed in keeping things buoyant. As long as Chinese keep making money, they are going to spend a percentage on Moutai. The company has even achieved some success in export markets lately, with sales rising 55% to $50mn in 2010.

If Mr. Yuan chooses early retirement and wants to bring in some foreign blood at the top, I’m available to take over. I’ve been to Guizhou, most recently just two weeks ago,  and like the scenery and the food. I also know how (thanks to a Guizhou client)  to evaluate the quality of Moutai: you rub a bit between your palms. If it smells like soy sauce, it’s the real thing.

The only snag: I’m not much of a fan of the company’s product. Since moving to China, I’ve had enough of it to pickle a goodly portion of my liver. But, it’s still an unacquired taste. Drinking good cognac or Armagnac familiarizes you with the aromas of peat and oak. Drinking Moutai familiarizes you with how instantaneously alcohol can go from gullet to bloodstream. Most frequently, I can remember drinking Moutai but not how I get home afterward. Maybe that’s the secret to the brand’s success?




Field Report from Guizhou – Where Cement Turns Into Gold

Blue vase in China First Capital blog post


While writing this, I was more than a little the worse for drink. Over dinner, I drained the better part of a bottle-and-a-half of Maotai, China’s most celebrated rock-gut spirit, which sells for a price in China that French brandy would envy, upwards of $80 a bottle. It’s one of the more pleasant occupational hazards of life in China for a company boss. As far as I can tell, some Chinese seems to view it as a matter both of national pride and infernal curiosity to get a Western visitor plastered. By now, I know well the routine. I sit at a table surrounded by people generally drawn together with a common purpose – to treat me solicitously while proposing enough toasts to render me wobbly and insensate.  

As far as career liabilities go, this is one I can happily live with. I always try to eat my way to relative sobriety.  I’m in Guizhou Province. (I’ll wait five minutes while most readers consult an online atlas.) The food here is especially yummy – intense, concentrated flavors, whether it’s a chicken broth (I’m informed it’s so good because local chickens have harder bones than elsewhere in China), pig ear soup, a simple stir-fried cabbage, or a dizzily delicious dish of corn kernels from cobs gathered nearby. So, with each glass of Maotai (which started as thimble-sized and then were upgraded to proper shot-glasses) I tried as best as I could to wolf down enough solid material to hold at bay the nastier demons of drunkenness. 

Did I succeed? I believe so. At least in part. My Chinese didn’t sputter and seize up like a spent diesel engine, and my brain could just about keep up with the typhoon of sounds, smells and data points of the humongous cement factory I toured after dinner. 

If you can find a way to get to Eastern Guizhou, or Western Hunan, do. You’ll likely travel, as I did, along an otherwise empty but fantastically beautiful motorway, past the squat two-stored dwellings of the local Miao people, and the inspiringly eroded prongs that make up the local mountain-scape. If you are even luckier, and share my peculiar taste of what constitutes an ideal weekend, you might just end up, as I did, at the largest private cement company in Guizhou. It’s called Ketelin, and it’s to capitalism what a Titian portrait is to fine arts: drop-dead gorgeous. 

With Maotai bottles drained, and dinner inhaled, I went on a walking tour of the Ketelin factory, on a warm, breezy and clear summer night unlike any I’ve ever witnessed lately in smoldering Shenzhen and Shanghai. My host here is the company’s founder and owner, 宁总, aka Ning Zong. If I had to specify a single rule to determine how to discern a great entrepreneur, it might be “his favorite form of exercise is to walk 20 laps around his humming factory every night after dinner.” Such is the case with Ning Zong. Another great indicator, of course, is to have a business where customers are lined up outside your door, 24 hours a day, waiting to buy your product. That’s also true here. There is a queue of large trucks outside the front gate at all hours, waiting to be filled with Ketelin cement.  

Ning Zong is out here, in what is considered the Chinese “back-of-the-beyond”, and has built the largest private company in the province. And that’s just for starters. His only goal at this point is to build his company to a scale where it can serve all its potential customers, with the highest-quality cement in this part of China. This being China, that’s a very substantial, though achievable vision. He’s already built a state-of-the-art factory, on a scale that few can match anywhere else. And yet, there’s still so much unmet demand, not just in Guizhou, but in nearby provinces of Sichuan, Hunan and Hubei that Ning Zong’s burning desire, at this phase, is to expand his business by several-fold. 

That’s why I’m here, to work with him to find the best way to do so, by bringing in around $15 million in private equity. I have no doubt whatsoever that his plans and track record will prove a perfect match for one of the better PE firms investing in China. Whichever one of them gets to invest in Ketelin will be very fortunate. This facility, and this owner, are both pitchforks perfectly tuned to the key of making good money from the boom in China’s infrastructure development. Among other customers, Ketelin supplies cement to the big highway-construction projects underway in this area of China. 

 Is Ketelin an exception, here in Guizhou?  I don’t really have the capacity to answer that. Guizhou is generally considered by Chinese to be the also-ran in China’s economic derby, poorer, more hidebound and more geographically-disadvantaged than elsewhere in southern China. Water buffalo amble along the middle of local thoroughfares, and field work is still done largely without machines, backs stooping under the weight of newly-gathered kindling. While Guizhou is poor compared to neighboring Hunan and Sichuan, poor regions often produce some of the world’s best companies:  think of Wal-Mart and Tyson’s, both of which got started and are based in Arkansas, which is as close as the US has to a province like Guizhou.  

Guizhou, from what I’ve seen of it, is breath-takingly beautiful, with clean air and little of the ceaseless hubbub that marks the cadence in big cities like Shenzhen and Shanghai. This is China’s true hinterland, the part of this vast country that eminent outsiders have long said was impossibly backward and so beyond the reach of modern development.  

They are wrong, because what’s right here is the same thing that has already generated such stupendous growth in coastal China. It’s the nexus of vision and opportunity, of seeing how much money there is to be made and then doing something about it, to claim some of that opportunity and money as your own. Ning Zong has done so, on a scale that inspires awe in my otherwise Maotai-mangled mind. 

Come see for yourself.