---
endpoint: analytics
pattern: Consumer
status: done
latency_ms: 172843
conversation_id: 991666e8-0f64-4689-8097-ef305c98542f
citations: 10
created: 2026-05-31 21:45:47Z
---

# What is Kweichow Moutai’s core business franchise and the key components of its operating model?

## Kweichow Moutai (600519 CH) — Core Business Franchise & Operating Model

### 1. Core Business Franchise

Kweichow Moutai's franchise is built around the **production and sale of premium sauce-flavour (Moutai-flavour) Chinese baijiu**, with one flagship and one supporting product line:

| Product line | What it is | FY24 / 1Q25 share of liquor sales |
|---|---|---|
| **Moutai liquor (Flying Fairy / Feitian)** | The flagship 53° sauce-aroma baijiu — described by the company as "the originator and archetype of Moutai-flavor liquors" and a brand integrating national geographical indication, organic food, and intangible cultural heritage [9] | **86%** [1] |
| **Series liquor (系列酒)** | Sauce-flavour baijiu produced under separate workshops at a lower price band — Moutai 1935, Prince, Yingbin, Hanjiang, etc. | **14%** [1] |

The franchise is anchored by what management formalised in the FY25 annual report as **"five core competencies": quality, brand, craftsmanship, environment, and culture** [10]. Earlier reports framed the same moat as **"four core potentials": unique territorial protection of product origin, irreplicable microbial colonies, unique brewing techniques inherited for over a thousand years, and a long-term cellaring base of high-quality baijiu resources** [8] — i.e. the franchise is fundamentally non-replicable because the micro-climate, water, and microbial ecology of the Chishui River valley in Guizhou cannot be reproduced elsewhere.

The financial signature of this franchise is exceptional:
- **Gross margin ~92%** and **net profit margin 52.2%** in 1Q25 [2][3]
- **ROE ~38%** with a **negative net debt position** (~70% net cash to equity) — implying the operating model funds itself entirely from prepayments and retained earnings
- **Geographic concentration**: domestic sales = **98%** of liquor sales; international = ~2% [2], with the marketing network covering 64–66 countries [9]

### 2. Key Components of the Operating Model

Management describes the model as a **three-stage linear chain: raw material procurement → product manufacturing → product sales** [7]. Each stage has a distinctive operating signature.

#### A. Raw material procurement — a managed supply chain in Guizhou

Moutai does not buy sorghum on the open market. The company uses a **"company + local government + supplier + cooperative or farmer" model for sorghum** (the red waxy sorghum unique to Guizhou) and a **"company + supplier + cooperative or farm" model for wheat** [9]. Other raw, auxiliary, and packaging materials are centrally procured against the production/sales plan [9]. This vertically managed agricultural base protects both raw input quality and quantity — a critical constraint given that all base liquor must be aged before blending.

#### B. Production — yeast → brewing → cellaring → blending → packaging

The production process is the classic five-step sauce-aroma sequence: **yeast (qu) making → Chinese baijiu making → cellaring → blending → packaging** [7][9]. The cellaring step is the choke point — high-end Moutai is aged ≥ 5 years before blending, which means today's sales are constrained by base-liquor laid down years earlier. CLSA's shareholder-meeting note explicitly flags that **"the scarcity of Moutai products will remain due to production limits"** [5], which is the structural source of pricing power.

#### C. Sales — a dual-channel model that is actively shifting toward direct

The sales model has **two channels**, and the channel mix is the most important live operating-model variable:

| Channel | What it includes | 1Q25 share of liquor sales | 1Q25 YoY growth |
|---|---|---|---|
| **Direct sales** | Self-operated boutiques + **"i Moutai" digital marketing platform** + non-iMoutai 2C channels | **46%** (up from 42% in 1Q24) [1] | **+20% YoY** [1] |
| **Wholesale (distributors)** | Social distributors, supermarkets, e-commerce platforms, and other channels | **54%** (down from 58% in 1Q24) [1] | **+4% YoY** [1] |

- The wholesale network ended 1Q25 with **2,174 domestic and 109 international distributors** (+31 domestic / +5 international QoQ) [3].
- The shift toward direct (boutique + iMoutai + 2C) captures more of the gap between the ex-factory price (~Rmb1,169/bottle) and the channel/retail price (~Rmb1,500–2,300), and is the primary margin lever management is pulling. Within 1Q25, direct-sales growth was **mainly driven by the non-iMoutai part**, reflecting deliberate expansion of 2C channels beyond the app [4].

#### D. Working-capital model — customer prepayments fund the business

Distributors pre-pay for allocations before shipment, so **customer advances are a leading indicator of channel willingness to take inventory**. In 1Q25 customer advances fell 8% YoY to Rmb8.9bn — CLSA reads this as a function of the channel mix shifting toward direct (which carries no prepayment), not weakening sell-through; adjusted sales (including the change in advances) were **+19% YoY** vs reported +11% [2][4].

#### E. Brand / marketing reinvestment — the FY25 budget

Per the 19-May-2025 shareholder meeting, management has guided FY25 to **9% YoY sales growth**, **11% YoY COGS growth**, and a heavy **27% YoY increase in expenses** for advertisement and marketing — explicitly to optimise the sales system, serve a younger consumer, and adapt to **changes in consumption scenarios** (shift away from business banquets toward family gatherings/life-moment occasions) [5].

#### F. Ownership / control

- **Moutai Group (state-owned, Guizhou Provincial SASAC) holds 54.0%** of the listco — a key reason the company is exposed to policy actions on government/SOE banquet consumption. CLSA's June-2025 expert call highlights that the May tightening of work-meal alcohol restrictions in Henan drove baijiu sell-through **down 30% YoY** in that province, demonstrating the policy sensitivity that sits alongside the brand strength [2][6].

### 3. Operating-Model Summary Diagram

```
[Sorghum / wheat]                  [Guizhou-only ecology]
 contracted farmers      →    yeast → brewing → cellaring (≥5 yr) → blending → packaging
                                                  ↑
                                          PRODUCTION CAP
                                          = source of scarcity
                                                  ↓
              ┌───────────────────────────────────┴────────────────────────────────┐
              │                                                                    │
        DIRECT (46%, +20% YoY)                              WHOLESALE (54%, +4% YoY)
        — Self-operated boutiques                            — 2,174 domestic distributors
        — iMoutai digital platform                           — 109 international distributors
        — Other 2C channels                                  — Supermarkets, e-commerce
              │                                                                    │
              └────────────────────────  Customer prepayments  ───────────────────┘
                                       (working-capital float)
```

### 4. Why the Model Generates Such Economics

The combination of (i) a geographically constrained, multi-year-aged premium base liquor; (ii) a 54%-state-owned distribution that historically tied baijiu to status / gifting / banquets; (iii) a deliberate shift from low-margin distributor sell-in to high-margin direct sell-through via iMoutai and 2C; and (iv) prepayment-funded working capital — together produce **~92% gross margin, ~52% net margin, and ~38% ROE with net cash** [2][3]. The risk vector that mirrors this is policy-driven (anti-extravagance, government/SOE banquet restrictions) rather than competitive, since no peer can replicate the Chishui valley ecology that anchors the franchise [8].

---

**Sources**

[1] Kweichow Moutai — 1Q25 slight beat (Quick Take) — CLSA, Elsie Sheng (29 Apr 2025) — 607957506LinqAlpha.PDF

[2] Kweichow Moutai — 1Q25 slight beat (channel mix, geographic mix, shareholding) — CLSA (29 Apr 2025) — 607957506LinqAlpha.PDF

[3] Kweichow Moutai — 1Q25 slight beat (distributors, NPM) — CLSA (29 Apr 2025) — 607957506LinqAlpha.PDF

[4] Kweichow Moutai — 1Q25 slight beat (direct-sales driver, iMoutai vs non-iMoutai) — CLSA (29 Apr 2025) — 607957506LinqAlpha.PDF

[5] Kweichow Moutai — Shareholder meeting takeaways (FY25 budget, scarcity, sales reform) — CLSA, Elsie Sheng (19 May 2025) — 607959909LinqAlpha.PDF

[6] China baijiu — Expert call on baijiu policy (Henan policy sell-through impact) — CLSA, Elsie Sheng & Lawrence Ren (10 Jun 2025) — 607961641LinqAlpha.PDF

[7] Kweichow Moutai Co Ltd — Annual Report 2022 (English) — Business model description

[8] Kweichow Moutai Co Ltd — Annual Report 2021 (English) — "Four core potentials" of the franchise

[9] Kweichow Moutai Co Ltd — Annual Report 2024 (English) — Business scope, raw material model, marketing network

[10] Kweichow Moutai Co Ltd — Annual Report 2025 (English) — "Five core competencies"

## Citations

- [1] **607957506LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957506LinqAlpha.PDF>
- [2] **607957506LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957506LinqAlpha.PDF>
- [3] **607957506LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957506LinqAlpha.PDF>
- [4] **607957506LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957506LinqAlpha.PDF>
- [5] **607959909LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959909LinqAlpha.PDF>
- [6] **607961641LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607961641LinqAlpha.PDF>
- [7] **贵州茅台2022年年度报告（英文版）** · external
- [8] **贵州茅台：贵州茅台2021年年度报告（英文版）** · external
- [9] **Kweichow Moutai Co., Ltd. (600519-CN) - Annual Report for period end 31-Dec-2024 (English) - PDF** · external
- [10] **贵州茅台2025年年度报告（英文版）** · external

