Insights from Brown-Forman's Cycle-Transcending Experience for Chinese Baijiu Enterprises

As a century-old enterprise in the American spirits industry, Brown-Forman has continued to develop after experiencing 6 major crises including Prohibition, the Great Depression, wars, and financial crises, and its core strategies are worth learning from Chinese baijiu enterprises. Currently, the Chinese baijiu industry is in a downcycle, mainly reflected in the fact that the stock prices of giants like Kweichow Moutai have fallen by more than 40% from their 2021 highs [6], weak consumer confidence [7], and the prohibition of alcohol at official events leading to a reduction in large banquets, with consumption shifting to smaller gatherings [8].

Brown-Forman’s cycle-transcending experiences mainly include: the 1956 acquisition of Jack Daniel’s to achieve brand diversification [1][2][3], maintaining a high gross margin of 58-70% for a long time [4], having pricing power through brand strength [4], strategic patience brought by family control [5], and the dynamic balance strategy of defense during crises (cost streamlining) and offense during upcycles (brand investment).

1. Brand diversification is an important anti-cycle measure
   : Brown-Forman reduced the risk of relying on a single brand by acquiring brands like Jack Daniel’s. Chinese baijiu enterprises usually rely on a single brand or a few brands, which poses greater risks in a downcycle.
2. High gross margins and pricing power depend on brand building
   : Brown-Forman has maintained high gross margins for a long time, benefiting from its brand’s pricing power. Although Chinese baijiu enterprises also have high gross margins, they may face price pressure in a downcycle. Brown-Forman’s experience shows that continuous brand building and product differentiation can maintain pricing power, thereby preserving high gross margins.
3. Family control is conducive to long-term strategic formulation
   : Brown-Forman is a family-controlled listed company, with the family holding about two-thirds of the voting rights, enabling it to formulate long-term strategies without being affected by short-term market fluctuations [5]. Some Chinese baijiu enterprises are also family-controlled, such as Kweichow Moutai and Wuliangye, and these enterprises can learn from Brown-Forman’s experience to maintain strategic patience and not blindly pursue short-term profits.

• Risks
  : The specific reasons for the downcycle of the Chinese baijiu industry have not been fully clarified; only factors such as weak consumer confidence and official alcohol bans are known [6][7][8], and there may be other unrecognized risks. Direct verification data for Brown-Forman’s “dynamic balance strategy of crisis defense + upcycle offense” has not been found and needs further verification.
• Opportunities
  : Chinese baijiu enterprises can draw on Brown-Forman’s brand diversification strategy to分散 risks through acquiring or nurturing multiple brands; strengthen brand building and product differentiation to maintain pricing power; family-controlled enterprises can maintain long-term strategic patience, optimize cost structures, and simultaneously seek opportunities for acquisitions or expansion into new markets.

Brown-Forman’s cycle-transcending experiences provide multiple insights for Chinese baijiu enterprises, including brand diversification, maintaining high gross margins and pricing power, and strategic patience from family control. Chinese baijiu enterprises need to combine the characteristics of the current industry downcycle to formulate anti-cycle strategies suitable for themselves. At the same time, further verification of Brown-Forman’s dynamic balance strategy and in-depth analysis of the specific reasons for the downcycle of the Chinese baijiu industry are required to better respond to challenges.