Baijiu bottles are on display in a bar in central London.
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Wu Xiangdong, a Chinese liquor mogul once known for his clever promotional tactics, added another $3 billion to his fortune when his ZJLD group raised HK$5.3 billion ($676) in one of Hong Kong’s biggest IPOs this year million dollars). But analysts say the tycoon faces stiff competition as he continues to expand his brand.
ZJLD, which begins trading on Thursday, has offered 491 million shares at HK$10.82 a share, according to stock documents. The price is at the low end of a previously stated range, but it still values Wu’s 69% stake at $3 billion. His total net worth is now $4.1 billion after the 54-year-old includes the 54-year-old’s stake in Shenzhen-listed liquor chain Vats, according to Forbes estimates.
ZJLD did not respond to a request for comment on the tycoon’s wealth. Wu, chairman and responsible for overall strategy and business direction, founded the company in 2003.
But it wasn’t ZJLD that turned out to be his first success. Wu studied import and export trade at Hunan International Business Vocational College and later ventured into the alcohol business with the help of his sister-in-law Fu Jun, according to local media reports.
The mogul was once famous for hiring soccer coach Bora Milutinovic to promote Jinliufu, another liquor brand he founded more than two decades ago. The entrepreneur splashed out in TV ads that resulted in Jinliufu’s baijiu, or Chinese liquor known for its fiery taste, becoming the go-to choice for banquets and weddings.
However, in the years that followed, Jinliufu was unable to maintain its market position as newer brands were launched and competition increased, says Shen Meng, managing director of Beijing-based investment boutique Chanson & Co. In 2005, Wu founded Vats Liquor, which its website says sells more than two dozen brands across China, including Wuliangye and the Penfolds wines.
ZJLD, which owns several liquor brands including Li Du and Zhen Jiu but not Jinliufu, is the mogul’s latest bet on navigating a market long dominated by state-owned and Shanghai-listed liquor maker Kweichow Moutai. Proceeds from the IPO will be used for purposes such as marketing and building manufacturing facilities over the next five years, according to its filing. The company doesn’t appear to have attracted any cornerstone investors.
“The high-profile IPO could help this regional brand raise awareness nationwide,” says Shen. “But it is very difficult and extremely competitive to expand across China and become a preferred choice for consumers.”
According to Frost & Sullivan data cited in its prospectus, ZJLD was the fourth-largest private baijiu company in China by revenue in 2021. But it had just 0.8% of the estimated $87 billion industry, ranking a distant fourteenth among all market participants. In 2022, revenue grew 14.8% to $846 million, while net income attributable to shareholders reached $149 million, the prospectus shows.
Kenny Ng, a Hong Kong-based securities strategist at Everbright Securities, says investors in the Asian financial hub are not as enthusiastic about baijiu firms as compared to those in mainland China, especially as growth for the entire industry may already have peaked. Pandemic restrictions have taken a heavy toll on levels of consumption, including that of fiery alcohol. And China is also seen discouraging drinking among officials.
That means ZJLD needs more financial muscle to gain market share, even though sales and marketing spend has already exceeded 20% of sales over the past year. “If you look at revenue, this company is still in a relatively fast growth phase,” says Ng. “ZJLD needs the IPO to increase its scale and build the brand.”
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