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March, 2018

Counterfeiting costs Maotai RMB 200 million annually

Original article: Sohu

Research results cited by Sohu.com show that fake Maotai baijiu (sorghum liquor) is omnipresent in China. Maotai is the world's most valuable spirits maker, China's top sorghum liquor brand and a fixture at Chinese banquets. More than 200 cases involving infringement of Maotai's trademark have gone to Chinese courts in 25 different provinces and cities, Sohu.com says. In 2017 alone, Chinese courts heard 65 such cases. Maotai says that it incurs about RMB 200 million in expenses every year because of counterfeiting. 


Analysis:

Maotai is headquartered in its namesake Guizhou Province town, which is under the jurisdiction of Renhuai City. In Renhuai, a bottle of premium Flying Ferry Maotai retails for RMB 1800. A counterfeit product costs about RMB 200. The fake Maotai is produced locally, although it is not clear if legitimate Maotai production facilities are involved in the counterfeiting production process. 


Following a report from the Chinese-language The Paper about the production of and sale of counterfeit Maotai, local authorities launched an investigation, according to Sohu. Officials from the Renhuai Propaganda Department told Xinhua that they had investigated "relevant retailers" and that they would continue to "smash counterfeiting" and "protect intellectual property." 


Demand for Maotai is surging in tandem with China's growing wealth. A January report by Bloomberg described nation-wide inventory shortages and "a buying frenzy." Purchased directly from the factory, a bottle of Flying Fairy is RMB 969. The suggested retail price is RMB 1499, but ambitious retailers may ask twice as much. 


Maotai has a reputation for not causing hangovers, which makes it popular with hard-drinking dinner guests. What could be better than twelve courses of Chinese banquet food and all the baijiu you can drink - without the usual intracranial throbbing the next day?  


The Maotai brand also benefits from its association with China's revolutionary leadership. When Mao Zedong and his comrades founded the People's Republic of China in 1949, they toasted each other with Maotai, Bloomberg notes. 


Incurring RMB 200 million annually in costs because of counterfeiting, Maotai is one of the Chinese brands most harmed by fake goods. The high prices of its sorghum liquor - which some consumers say are unjustified - make it an easy target for counterfeiters. Counterfeiters can spend a pittance of that to fill a legitimate Maotai bottle with fake liquor. If they can't find a recycled legitimate bottle, it's relatively cheap to produce a fake one. 


Profits from counterfeit Maotai can be significant. One counterfeiter, surnamed Zhang, amassed RMB 837,600 in profits from the sale of fake Moutai between November 2011 and December 2015, according to Guizhou court documents. The counterfeiter bought 4,188 fakes bottles for RMB 250 each and sold them for RMB 450 a piece, earning a margin of 80%. 


The court found Zhang guilty of trademark infringement and sentenced him to five years prison and ordered him to pay a fine of RMB 1 million. 


Reducing trademark infringement in China will require a sustained crackdown by authorities, Maotai deputy general manager and NPC delegate Zhang Deqin said during the Two Sessions. Zhang pointed out that companies themselves lack the authority to punish counterfeiters; they can only report them to local authorities. The counterfeiters may evade punishment if they have strong regional networks. Instead of focusing on March 15 (China's Consumer Rights Day) as the time to fight counterfeiting, China should crack down regularly on trademark infringement, just as it does with fake currency and drunk driving, Zhang said.

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