You know you're in Maotai when you smell it. The picturesque town of about 100,000 in southwestern China is home to the world's most valuable liquor company - and the soy-sauce-like scent of the Chinese grain alcohol baijiu, made by the eponymous Kweichow Moutai Co, permeates the main street.
But inside the liquor stores along the road, the distiller's main brands are all sold out. Lines form wherever bottles are available. The buying frenzy - and resulting inventory shortages - extend nationwide.
Moutai baijiu's fiery flavour and potential to appreciate in price is driving the blistering demand. That, in turn, has pushed its market value to more than $145 billion, well past British whisky giant Diageo. The Chinese firm sells each bottle of its main Flying Fairy brand to distributors for $150 (NZ$206) and sets a suggested resale ceiling of US$233, yet they routinely go for double online and off. Its website is out of stock. On shopping site JD.com, an 80-year bottle is listed for US$30,000 (196,888 yuan).
Chinese buyers say they like Moutai's baijiu for its complex flavour and a purity that prevents hangovers - but its special manufacturing process also puts limits on its production. The grain and water used to make it must come from Maotai town and the brew must be buried in urns for at least four years before it's sold. As the state-owned giant grapples with shortages, smaller rivals like Wuliangye Yibin Co. are already starting to win more business.
All that's putting Moutai's chairman, Yuan Renguo, in the difficult position of having to sustain growth even as his company literally runs out of liquor. In a rare interview in December, he said the answer will lie - at least partly - in introducing more ultra-premium and customized products that capitalize on the Moutai brand.
"Two thousand years ago, the Chinese calling card was lions, 1,000 years ago it was Chinese porcelain, 500 years ago it was tea leaves and now it's local brands with their own intellectual property," he said. "I believe Moutai is one of these."
Baijiu, which means white liquor, can be made from sorghum, rice, wheat or corn, and may contain as much as 53 percent alcohol by volume.
While few outside China buy the liquor, Moutai baijiu is baked into national myth as the drink of choice for Communist Party leaders. It's what Mao Zedong and his comrades toasted with at the founding of the People's Republic in 1949. Just four years ago, the distiller was battling a slowdown as an austerity drive in Beijing slashed demand from government officials. But purchases by ordinary Chinese have more than compensated since then.
Yuan, 61, wants to sell more customized lines, like the US$767 (HK$6,000) bottles with the company's label that was created exclusively for a Macau junket operator. He's added more limited edition bottles like the ones Moutai created for the 70th anniversary of China's World War II victory over Japan. That one is listed for 1,999 yuan (NZ$426) on the company's website, though it's also sold out. Then there's the opportunity to sell higher priced "mature baijiu" - the older the baijiu, the more expensive (and profitable) it is.
"Since sales volume will stay constant next year, we think we can maintain revenue growth through this strategy," Yuan said, referring to the more premium products. Moutai expects revenue in 2017 to exceed 60 billion yuan, and to rise more than 10 percent in 2018.
Yuan, who has been at the company for four decades, is also attempting to increase production. But he said Moutai won't be able to produce more than 60,000 metric tonnes of its baijiu annually, based on the land it controls. While that's 53 percent more than last year's production of 39,313 tonnes, the numbers reflect the endpoint to potential expansion.
Analysts at Sanford C. Bernstein & Co estimate Moutai will have to limit its supply growth to 4 percent annually for the next three to five years to be able to sell the Flying Fairy brand sustainably -- without using up too much of its stores of ageing liquor.
They estimate Moutai boosted supply of Flying Fairy by 38 percent in 2017, implying it borrowed from the future in order to deliver a short-term result. "Continuing this pace of depletion is not sustainable," said Bernstein analyst Euan McLeish.
In the face of production limits, the easiest way to keep revenue growing is, of course, to raise prices. An 18 percent price increase announced by Moutai in December drove its shares up more than 8 percent. Still, Beijing puts restrictions on the prices of high-end liquor. And as a state-owned enterprise, Moutai is also expected to display a certain public spirit. So relying too heavily on price increases of its basic brands isn't sustainable. The company has said it has asked affiliates to keep prices stable and told retailers to prevent hoarding.
There's also the sense of social responsibility that Moutai must show, particularly as a profitable business in Guizhou, one of China's poorest provinces. Even as factories around the country embrace automation, its factory floor remains deliberately manpower heavy - the ribbon on each Moutai bottle is still tied by hand. It's also just opened a non-profit university, Moutai University, the first in China to offer baijiu distillation as its core degree, to create even more experts on the luxury drink.
Wu Yuanjian, 20, who recently enrolled, sees a distillation degree as an entry ticket into a hot business. "I want to join the sales department of Moutai actually," he said. "You can make more money there."
Sitting on a massive cash pile of more than 69 billion yuan, the chairman's other plans include expanding the company's finance business through subsidiaries in insurance and asset management. He's also weighing public listings of three of its units: its e-commerce business, an agricultural arm and another that sells its less-expensive baijiu, known as Xijiu or Xi liquor.
Last year, Goldman Sachs upgraded its price recommendation on Moutai's shares 14 times, data compiled by Bloomberg show, and other analysts also issued bullish views. At the moment, there are 26 analysts with buy ratings, three with hold ratings and no sell recommendations.
But as the shares surged last year, the state-owned Xinhua News Agency urged investors to be more cautious, saying the stock should rise at a slower pace. The company issued its own statement saying analysts' share price targets and valuations in the market were "overly high."
After a brief decline, however, the shares resumed their surge and ended about 109 percent higher for 2017.