Diageo: Chinese baijiu market won’t recover until 2015

Diageo has predicted the Chinese baijiu market will not return to growth until 2015, following extreme austerity measures by the government.

Sales of Diageo’s Shui Jing Fang declined 66% in the first half of this year

As a result of a clampdown on gifting and luxury spending in China over the last year, the super- and ultra-premium baijiu market has shrunk.

Despite claiming its own baijiu brand, Shui Jing Fang, played less in the high-end part of the market, the group suffered a 66% decline in net sales in the first half of its 2013/14 financial year thanks to “significant price discounting by competitors”.

Diageo CEO Ivan Menezes said he believed it would take a few more years before the baijiu market in China would stabilise.

“As the total market shrank the big players cut prices and there’s now a lot of stock in the system,” he said. “The overall category is going through a correction, which is why it will take us through 2015 to get it back into growth.”

Menezes added that while the Chinese government’s austerity measures had severely impacted baijiu and Cognac to a degree, its luxury Scotch portfolio “performed strongly”.

“The Johnnie Walker houses [in Shanghai, Beijing and Seoul], are doing really well. We have a lot of tailored products we sell there at $3-5,000 a bottle, and we are doing direct sales out of those operations.

“We put a lot of focus and investment behind building Johnnie Walker Blue which is up about 60% in the half, and this is really going directly to the consumer for consumption, and not dependant on gifting or government entertaining.”

In its half-year results, announced yesterday, Diageo reported volume share gains driven by Johnnie Walker Blue Label in China, and Johnnie Walker Gold Label XR and The Singleton in Taiwan.