Liquor (Baijiu) consumption in China

I came across this number today: 6.29 billion liter of Baijiu (a traditional Chinese liquor) was produced in 2023.

I am wondering how to make sense of this.

1 liter = ~0.9kg or 18 liang (两, a traditional Chinese measurement)

6.29 billion liter = 4.5 liter per person, or 81 liang

So if all produced were consumed, it’s 81 liang per person per year, or 1.5 liang per week.

If you assume children (250mn below 15) and many women don’t drink Baijiu that much, it could 3 liang per adult male per week.

It sounds like a pretty high number. One typically won’t drink 3 liang if eat at home. It’s usually for dinning out with business or other occasions.

Considering how occasions like this would decrease over time – younger generation might prefer a different life style, or businesses could be done without being drunk at dinners, it’s hard not to question about how much Baijiu China needs to consume each year.

I won’t be surprised if the volume can be down 1/3 or 1/2 from here in decades, assuming no export or store of value etc.

Casper’s IPO And Valuation

DTC is a buzzword that attracts capital in the private market.

However, public market usually doesn’t have much patience or appetite for future stories.

Casper, the magical mattress unicorn, which raised $100 million in March 2019, marketing itself as a “Sleep Economy” company, is receiving a market cap of $400 million (EV ~$300 million).


The main problem though, is not about the DTC model.

Brands such as Canada Goose and Lululemon are counting on DTC to grow.

The slowing revenue growth rate is also okay. Public market is not relentlessly looking for 100% or 50% growth.

Indeed, Canada Goose and Lululemon, which grew at sub-25% in the last 12 month, are valued at over 4x and 8x sales respectively.

Casper, which is expected to grow at 23% for 2019, has EV/Revenue below 1x.


The cost structure is where things are different.

From 2019 April to December (FY20Q1-Q3), Canada Goose‘s SG&A expenses are 31.2% of revenue.

From 2019 February to October (FY19Q1-Q3), Lululemon‘s SG&A expenses are 36.4% of revenue.

That ratio is 70.5% for Casper from Jan to Sep 2019.

Plus the differences in gross margin, the unprofitable DTC brand growing at sub-25% still needs additional efforts to prove its business is viable/sustainable.

Suntory And Whisky (2)

Current Availability

Suntory’s whiskies, especially Yamazaki, has been in shortage in the past few years; the prices have been increasing constantly.

Source: asia.nikkei.com

This week, Suntory unveiled a limited edition 55-year-old Yamazaki single malt whisky, which it will sell for 3 million yen ($27,347.31) a bottle. Only 100 bottles will be sold from June 30, and buyers will be chosen by lottery. Blended from whisky matured in mizunara and white oak casks, the edition will be the oldest version of Yamazaki.

The company in 2005 sold a limited edition of a 50-year-old Yamazaki for 1 million yen. One of them auctioned by Bonhams in Hong Kong in 2018 fetched HK$2.695 million.

In May 2018, it was reported that sales of Hakushu 12 Year and Hibiki 17 Year to be suspended in Jun 2018. Suntory said the demand was far outstripping supply and distillers were not being able to produce enough of it.

Before that, the demand for the Hibiki 12 year has become unsustainable and in 2015 Suntory announced it would be discontinuing the expression.

Currently the most commonly seen versions for Yamazaki are 12yr, 18yr, 30yr and Distiller’s Reserve (no age).

Image
Source: whisky.suntory.com

The Distiller’s Reserve version was launched in 2014, containing a range of liquid aged from around eight to 20 years. Blended by Suntory chief blender Shinji Fukuyo, the Yamazaki Distiller’s Reserve is a vatting of whisky matured in French oak Bordeaux wine casks, Sherry casks, mizunara casks (Japanese oak) and American oak casks, with some peated malt added. [thespiritsbusiness]


Awards (Whisky Bible: WORLD WHISKIES OF THE YEAR)

  • 2016: Suntory Yamazaki Mizunara (Bot.2014) (ranked 5th our of 5 picks)
  • 2015: The Yamazaki Single Malt Sherry 2013 (ranked 1st out of 3 picks)

Awards (World Whiskies Awards)

  • 2019 WORLD’S BEST BLENDED WHISKY – Hibiki 21 Years Old
  • 2018 WORLD’S BEST SINGLE MALT – Hakushu 25 Years Old
  • 2017 WORLD’S BEST BLENDED – Hibiki 21 Years Old
  • 2016 WORLD’S BEST BLENDED – Hibiki 21 Years Old

Awards (International Spirits Challenge, Gold)

Yamazaki

  • 2007 – The YAMAZAKI Single Malt Whisky 18 years old
  • 2009 – Yamazaki 1984
  • 2010 – The YAMAZAKI single malt whisky 12YO
  • 2010 – The YAMAZAKI single malt whisky 18YO
  • 2011 – The Yamazaki Single Malt Whisky 1984
  • 2012 – The Yamazaki Single Malt Whisky Aged 18 Years
  • 2013 – The Yamazaki single malt whisky Puncheon 2012
  • 2013 – The Yamazaki single malt whisky Mizunara 2012
  • 2013 – The Yamazaki single malt whisky 18 Years Old
  • 2014 – THE YAMAZAKI SINGLE MALT WHISKY MIZUNARA 2013
  • 2014 – THE YAMAZAKI SINGLE MALT WHISKY BOURBON BARREL 2013
  • 2014 – THE YAMAZAKI SINGLE MALT WHISKY 18 YEARS OLD
  • 2015 – THE YAMAZAKI SINGLE MALT WHISKY MIZUNARA 2014
  • 2017 – The Yamazaki Single Malt Whisky Limited Edition 2016
  • 2018 – THE YAMAZAKI SINGLE MALT WHISKY 12 YEARS OLD
  • 2018 – THE YAMAZAKI SINGLE MALT WHISKY 18 YEARS OLD
  • 2019 – THE YAMAZAKI SINGLE MALT WHISKY MIZUNARA 2017 EDITION

Hakushu

  • 2008 – Single Malt Whisky “Hakushu” aged 25 years
  • 2009 – Hakushu 18 y.o.
  • 2010 – The HAKUSHU single malt whisky 25YO
  • 2010 -The HAKUSHU single malt whisky HEAVILY PEATED
  • 2011 – The Hakushu Single Malt Whisky Bourbon Barrel
  • 2012 – The Hakushu Single Malt Whisky Aged 25 Years
  • 2012 -The Hakushu Single Malt Whisky Aged 12 Years
  • 2012 – The Hakushu Single Malt Whisky Sherry Cask (12 years old and under)
  • 2013 – The Hakushu single malt whisky Heavily Peated 2012
  • 2013 – The Hakushu single malt whisky 25 Years Old
  • 2013 – The Hakushu single malt whisky 18 Years Old
  • 2014 – THE HAKUSHU SINGLE MALT WHISKY SHERRY CASK 2014
  • 2014 – THE HAKUSHU SINGLE MALT WHISKY 25 YEARS OLD
  • 2014 – THE HAKUSHU SINGLE MALT WHISKY 18 YEARS OLD
  • 2015 – THE HAKUSHU SINGLE MALT WHISKY 25 YEARS OLD
  • 2016 – The Hakushu Single Malt Whisky 25 Years Old
  • 2016 – The Hakushu Single Malt Whisky 18 Years Old
  • 2017 – The Hakushu Single Malt Whisky 25 Years Old
  • 2017 – The Hakushu Single Malt Whisky 18 Years Old
  • 2019 – THE HAKUSHU SINGLE MALT WHISKY 25 YEARS OLD
  • 2019 – THE HAKUSHU SINGLE MALT WHISKY 18 YEARS OLD

Hibiki

  • 2009 – Hibiki 17 y.o.
  • 2010 – SUNTORY Whisky HIBIKI 12YO
  • 2010 – SUNTORY Whisky HIBIKI 21YO
  • 2012 – Hibiki Japanese Blended Whisky Aged 21 Years
  • 2012 – Hibiki Japanese Blended Whisky Aged 17 Years
  • 2013 – Hibiki Japanese Blended Whisky aged 17 years
  • 2013 – Hibiki Japanese Blended Whisky aged 12 years
  • 2014 – HIBIKI JAPANESE BLENDED WHISKY DEEP HARMONY
  • 2014 – HIBIKI JAPANESE BLENDED MELLOW HARMONY
  • 2015 – HIBIKI JAPANESE BLENDED WHISKY AGED 12 YEARS
  • 2016 – Suntory Whisky Hibiki 17 Years Old
  • 2016 – Suntory Whisky Hibiki Mellow Harmony
  • 2017 – Suntory Whisky Hibiki Japanese Harmony Master’s Select
  • 2019 – SUNTORY WHISKY HIBIKI JAPANESE HARMONY Master’s Select

Chita

  • 2017 – Suntory Single Grain Whisky Chita Distillery

Suntory And Whisky (1)

A History of Suntory’s Three Whisky Distilleries

The founder of Suntory, Shinjirō Torii (born in 1879), started with selling imported wine in Osaka in 1899.

Incorporation – the store became the Kotobukiya company in 1921.

In 1923, the Yamazaki Distillery was constructed – Japan’s first malt whisky distillery. It was built in the town called Yamazaki 山崎町 (now in Shisō 宍粟市, Hyōgo 兵库县), on the periphery of Kyoto. This region was formerly referred to as “Minaseno”, where one of the purest waters of Japan originates. Yamazaki Distillery is where the Katsura, Uji and Kizu rivers converge, providing a unique misty climate and one of Japan’s softest waters. The diversity of this region’s temperature and humidity creates ideal conditions for cask aging, known as the signature “Suntory Maturation”.

Source: whisky.suntory.com

Production began in 1924 and five years later it launched Japan’s first single-malt whisky Suntory Whisky Shirofuda (white label) in 1929.

Keizo Saji (Torii’s son) becomes 2nd president in 1961 (at age of 42); Shinjirō Torii passed away in 1962.

In 1963, Kotobukiya changed its name to “Suntory” from “Torysan”, taken from the name of the whisky it produces.

In the same year, Musashino Beer Factory (in Fuchū 府中市, Tokyo 东京都) began its production of the Suntory Beer.

In 1972, Keizo built Chita Distillery on the shores of Chita Peninsula (Chita 知多市, Aichi 爱知县).

Source: whisky.suntory.com

In 1973, Hakushu Distillery was established, in the Toribara locality of the former town of Hakushū 白州町 (now part of Hokuto 北杜市 in Yamanashi 山梨县), It is located in the foothills of Mt. Kaikomagatake.

Source: whisky.suntory.com

1980s – Distilleries Becoming Brands

Until the 1980s, whisky made at Yamazaki was bottled as Suntory blends. It began to market their distilleries in the way the Scottish market theirs, by branding the whisky for the distillery at which it is made. [Japanese Whisky Handbook by Gary Clark]

Saji pioneered the distillery’s move into single malt whisky in 1984, with the launch of Suntory Single Malt Whisky Yamazaki – the first time Yamazaki is used as the brand name. This was followed by Yamazaki 18 Years Old in 1992. [thespiritsbusiness]

In 1989, the 90th anniversary of the company’s founding, Suntory Hibiki was released. It is a blended whisky using whiskies from the three distilleries Yamazaki, Hakushu, and Chita.

Source: whisky.suntory.com

Shinichiro Torii becomes the 3rd president in 1990.

In 1994, Hakushu Single Malt Whisky is launched.

In 2003, the Yamazaki 12 Years single malt whisky became the first Japanese whisky to win the gold medal at the International Spirits Challenge, the most authoritative liquor competition in the world.

Source: whisky.suntory.com

「What’s News in China」

BeiGene (NASDAQ: BGNE; HKEX: 06160), announced on Nov 14 that BRUKINSA™ (zanubrutinib) has received accelerated approval from the US FDA as a treatment for mantle cell lymphoma (MCL) in adult patients who have received at least one prior therapy. This is the first time that the FDA approved a drug based on efficacy data that is predominantly from China. // reuters | BeiGene


Trip.com (NASDAQ: TCOM), formerly Ctrip.com (Nasdaq: CTRP) and TripAdvisor (Nasdaq: TRIP) announced a strategic partnership on Nov 6 to expand global cooperation, including a joint venture, global content agreements and a governance agreement. TripAdvisor will own 40% of the joint venture. Trip.com shall acquire up to 6.95 million TripAdvisor shares or TripAdvisor shares valued at USD317.6 million through open market transactions within one year following regulatory approvals. Trip.com will have a nomination right for one TripAdvisor board seat commencing upon the relevant regulatory bodies’ approvals of the transaction. // TripAdvisor


Luckin Coffee (NASDAQ: LK), a coffee chain founded in 2017 in China and operating only 9 stores that year, grew to 3,680 stores at the end of 2019 Q3, with quarterly revenue expanding more than 6-fold to RMB1,493.2 million from RMB227.1 million a year ago. Also mentioned in the earnings release, Luckin “strategically launched Luckin Tea as an independent brand and developed our new retail partnership model, .. engaged in ongoing discussions with potential strategic partners to set up joint ventures in markets outside of China.” // Luckin Coffee

Source: luckincoffee.com

DTC Brands Stocks Revealed Their Margins

As Direct-to-Consumer (DTC) businesses are booming and going public as companies, their earnings report gave us some insights into their gross margins and what those products cost the companies to produce (cost of goods sold is the flip side of gross margin).

Canada Goose, in their Second Quarter Fiscal 2019 results, said that DTC gross margin is 75.6%, a 40 bps increase from last year.

Image result for canada goose logo cost of goods sold: 24.4%

Moncler similarly has a gross margin of 76.6% for 2019 H1.

Image result for moncler logo cost of goods sold: 23.4%

Tiffany in the most recent quarter has a gross margin of 62.7%, decreasing from 64% the year before. LVMH recent announced its attempt to acquire Tiffany.

Image result for tiffany logo cost of goods sold: 37.3%

Even the giant consumer staples company Procter & Gamble’s gross margin stays at 47.7%.

Image result for p&g logo cost of goods sold: 52.3%

New Uber Credit Card… Not Sexy

In another post weeks before, I wrote how Uber Card can beat Chase Sapphire Reserve (CSR) in many ways.

But things change fast.

Two of my favorite perks are removed/reduced in this new Uber Credit Card – $50 annul credit in subscription is removed (a huge drop in NPV when comparing with other cards), and 4% dining is changed to 3% (a 25% reduction!)

Uber is definitely trying to save some costs and increase cardholder’s usage of Uber here. There will be no cash back – rewards are redeemed in the form of Uber Cash.

After the changes, Uber Credit Card will earn 5% on Uber related purchases (like Amazon Prime Rewards Visa Signature Card has 5% on amazon purchases). So when comparing costs of Lyft and Uber, technically you need to do a 5% adjustment to see which is better (too much of a hassle!).

The changes are coming for February 2020 billing period according to the email I received.

The new card design looks better tho.

Uber Credit Card
Source: cards.barclaycardus.com

「What’s News In China」

President Xi said the country needs to “seize the opportunity” afforded by blockchain technology. His speech also called for the creation of “Blockchain+,” a platform alluding to personal development such as education, employment and food and medicinal safety, among other basic needs. Since a 2017 decision by the People’s Bank of China, cryptocurrencies are banned in the country, although a digital renminbi is being developed by the central bank and likely to launch soon. // coindesk | TechCrunch


NetEase (NASDAQ: NTES)’s e-learning unit, Youdao (有道) made its debut on NYSE on Friday Oct 25, listed under the symbol “DAO”. Youdao priced its IPO shares at $17 per ADS, raising ~$95.2 million. The company is also raising another $125 million through the private placement of 7.35 million ordinary shares, to funds managed by Orbis Investment Management Ltd., for a total raise of $220.2 million. Founded in 2006, Youdao provides online dictionaries, online classrooms and language courses, with 100 million monthly average users in China in the first half of 2019. // marketwatch | 21jingji


Starbucks announced the new addition of Bar Mixato to its Starbucks Reserve Roastery in Shanghai. It features a full bar menu, which includes the global debut of 11 innovative coffee- and tea-based cocktails specially created and available only at the Shanghai Roastery. // Starbucks

Uber Card vs. Chase Sapphire Reserve (CSR)

Let’s compare the long-term value here.

Dining & Travel is 3.0x points for CSR and a $1.5x value per 100 points -> essentially a 4.5% reward.

Uber Card is 4% on dining and 3% on Travel.

The difference in annual fees are totally different: CSR is $150 ($450 fees minus $300 travel credit) while Uber Card is -$50. (YES, Negative 50 – Uber Card reimburses $50 each year for any subscription e.g. amazon prime while has $0 annul fee).

Assuming a person spends $5,000 per year in travel and dines for $20,000 per year (around $55 per day), then:

CSR will earn 1.5% premium on travel, so $75 more benefits than Uber Card.

And 0.5% premium on dining, so $100 more benefits than Uber Card.

Uber Card wins as the effective saving in annual fee is $200 while the incremental benefit CSR brings is only $175 with our assumptions.