Investment Memo: Moutai’s Price Hikes, Brand Control, and Speculative Dynamics
(with analogies to Nike, Ferrari, Watches of Switzerland, and Pien Tze Huang)

1. Introduction and Background

My original logic for investing in Moutai was based on four pillars: a demographic dividend, an expanding middle class, rising GDP, and a growing preference for high-quality spirits. However, the current situation has fundamentally changed. Key pillars of the economy—real estate, education, internet platforms, and finance—are experiencing a downturn. The middle class is contracting, and demographic shifts indicate that the core consumer group (aged 30 to 50) is aging. Moreover, business and government occasions for banquet-style drinking are declining, while younger generations gravitate toward non-alcoholic beverages rather than traditional baijiu. Overall economic conditions are under pressure, with M1 money supply shrinking and consumer spending shifting from brand-driven to more budget-friendly platforms like Pinduoduo.

2. Observed Reversal of Growth Factors

Core Demand Decline
The economy is in a down cycle, with property prices falling in many cities by 30%+. This undermines consumer confidence and reduces discretionary spending. As a high-end consumable, Moutai is subject to cyclical and macroeconomic pressures. If the company aims to maintain its annual production of 50,000 metric tons, it may be forced to reduce prices to align with weaker market demand.
From Gradual Premiumization to Speculative Bubble
Since 2015, Moutai’s retail price has become increasingly disconnected from underlying wages and broader economic growth. A large portion of its pricing power came from speculative trading rather than pure consumer demand, causing the price to inflate sharply—much like real estate and certain internet or infrastructure assets. As banquet consumption wanes and large inventories (potentially tens of thousands of metric tons) come onto the market, the price is converging toward wholesale levels. Secondary and tertiary distributors may face bankruptcies, raising questions about both volume and future price hikes.

Picture: Price Gap between price to distributors to end market price (almost double pricing, on the SAME product).

Parallel with Real Estate Correction
Just as the Shenzhen property market has retreated to 2019 price levels and may drop further, Moutai could follow suit. The longstanding belief in “property values only go up” is crumbling; similarly, Moutai’s “infallible” brand premium could see a comparable reset. Although scenarios of “price inversion” (where wholesale costs drop below official retail prices) are uncertain, there is a clear trend of prices converging downward. In addition, Moutai’s limited-edition offerings (e.g., zodiac-themed bottles) and special allocations lose appeal when overall demand contracts. They were like the regular Ferrari models you have to buy, and lose money on, before getting special allocations on new models. Their sales are complementary to core products, another way to hike the price.

3. Speculation and Brand Control

Financial Attribute Overpowers Product Attribute
Moutai has evolved into a financial asset rather than a pure consumer product. When brand owners lose control over end-market pricing—often to third-party flippers or speculators—their most valuable intangible asset (brand prestige) is at risk. Once the bubble bursts, either due to economic recession or product quality issue, massive stored supply will be dumped on a saturated consumer retail market, resulting in price drops and permanent damage to brand value.

Analogy to Pien Tze Huang
Pien Tze Huang faced questions about excessive price hikes and relying on it to boost revenue, which ultimately backfired and it turns out end demand was not there to support such price levels, it was mostly consumed by flippers who sold out the first sign price decreases in the end market. Moutai’s situation is parallel: an overreliance on third-party distributors, a secondary market that sets inflated prices, and inventory hoarding all weaken the company’s direct control over its brand.

Facing pressure to boost its performance, Pien Tze Huang once again resorted to a price hike. In May 2023, the company announced that the domestic retail price of its bolus form would rise from RMB 590 per pill to RMB 760 per pill—an increase of 28.81%—marking the largest price adjustment in the past 18 years. It is estimated that the corresponding ex-factory price increase exceeded 40%, which is higher than the retail price hike.

Contrary to expectations, however, this record-breaking price adjustment did not provide a meaningful lift to Pien Tze Huang’s performance. According to the annual report, the company’s net profit growth in 2023 was only 13.15%. Notably, in the fourth quarter of 2023, Pien Tze Huang’s net profit even posted a rare year-on-year decline of 6.47%, sparking widespread concern in the market.

Potential Targets in the US Market: Nike & Ferrari & Rolex

Nike has grappled with sneaker “flippers” who inflate secondary-market prices. It artificially creates scarcity for selective models of Jordans to inflate secondary market trading price. Shoe flippers were a major source of income / side gig for young people during the pandemic and stimulus era. The sneaker market was hot with consumers buying up any new models that were launched. But when the inventory exceeds demand and the market cools down, it quickly unravels. Now Nike is stuck with high inventory of Jordans on the market needing years to digest before consumers come back to purchase new ones. The design and innovation, just by changing a color patch and making it artificially rare, was just not there to meet the thousand dollar price tag. This has damaged the brand image, and all in the end were just a cycle.

Source: Fourwheel Trader. Resale value of selected Ferrari model fluctuates as well

Ferrari has a reputation for carefully curating which customers can purchase its limited-edition or special-run models (e.g., an exclusive track-focused variant). Enthusiasts and flippers alike are often told they must buy lower-demand or less-popular Ferraris to demonstrate loyalty and qualify for the “must-have” editions. These special models typically hold or even increase in value on the secondary market, creating a speculative environment. You can track the total number of ferrari listed and its resale price trends, I would be paying closer attention to the resale market and raise the alarm when the inventory keeps climbing and sales price on the decline. This is a bad omen for new deliveries.

However, Ferrari is catering to the wealthy 1% to 0.1%, people aren’t eager to sell their Ferraris when the secondary market is not doing too well. And they are more than happy to accommodate multiple models in their garages, so I would say the secondary price more likely affects its valuation and how the market perceives its brand value, it would not experience serious up and down swings like the broader consumer market brands does. If they have a waiting list built up like Hermes, even better.

Whenever a cycle bursts, be it real estate, commodities, watches, etc, the liquidity that was plenty during the uptrend evaporated during the downtrend. The price may not drop in a straight line but will gradually decline as buyers lower their offer and sellers lose their patience due to forced selling. Those with inventory on hand should dispose all inventory at the first sign, even at a discount, to recoup liquidity and prevent further losses.

Rolex: Watches of Switzerland (Retailor)

Reduced “Pull-Through” Demand
When secondary prices for Rolex soared, even less-popular models sold quickly because buyers wanted any Rolex to gain access or to flip. A resale market bust could reduce the overall frenzy, slowing store traffic and possibly affecting revenue.

Inventory and Pricing Strategies
If fewer customers are motivated to buy at official retail (hoping to flip later), Watches of Switzerland may see more unsold inventory or have to manage more cautious purchasing by watch collectors. This can affect the retailer’s sales mix and margin.

4. Potential Scenarios and Risks

Flat or Negative Growth
Moutai’s performance in 2025 and beyond may see no net growth if it cannot sustain both volume and price. The previous era of simultaneous volume expansion and price appreciation may give way to the opposite—falling volumes and downward price pressure. In such a scenario, valuations could compress to around 15 times earnings, reflecting more modest expectations.
Loss of Market Mythos
Like the property market, Moutai’s brand “myth” may dissolve if the broader environment no longer supports ever-increasing prices. Faith-based or “cult” investors risk significant losses if they remain anchored to outdated beliefs.
Margin Calls and Forced Selling
A final risk is that highly leveraged investors—be they flippers, distributors, or retail stockholders—may need to offload large volumes at once, further accelerating a price decline. This scenario could be analogous to forced sales in real estate markets.

Disclaimer:
This memo is for informational purposes only and reflects personal views on Moutai, its brand control challenges, and parallels in other markets. It does not constitute investment advice or a recommendation to buy or sell any security. Investors should conduct their own research and consider their risk tolerance before making any investment decisions.

Follow Up: Moutai has lost 10% of its value since our memo, the secondary resale price stabilizes around 2,200 yuan with low liquidity.

Pien Tze Huang stock lost 12%