Diageo to write down value of baijiu brand

Diageo is to write down the value of its majority stake in beleaguered baijiu brand Shui Jing Fang as sales of the Chinese spirit continue to decline, reports claim.

Diageo is expected to announce a value write-down of its stake in baijiu brand Shui Jing Fang on Thursday

According to the Financial Times, Diageo will announce a write down of Shui Jing Fang as the baijiu market continues to struggle against extreme austerity measures by the Chinese government.

It is thought that the UK drinks group will make the announcement during its financial results on Thursday 31 July.

Diageo became the sole shareholder in the brand’s parent company Sichan Chengdu Shuijingfang Group Company (SJF Holdco) for £233 million in July last year after buying a controlling share in 2011.

The move followed Diageo’s announcement that it hoped to build Shui Jing Fang into an internationally recognised brand by launching in the UK and other parts of Europe.

At the time, the group expected super-premium white Chinese spirits to expand in value by 10% a year until 2015.

However, despite being China’s best-selling spirits, baijiu has suffered in its home market as President Xi Jingping continues to crackdown on conspicuous consumption and gifting among government and military officials, also hitting sales of high-end Cognac in the country.

Troubled market

In January, Diageo reported a 66% fall in sales of Shui Jing Fang, adding that the baijiu market would not return to growth until 2015.

“As the total market shrank the big players cut prices and there’s now a lot of stock in the system,” Ivan Menezes, CEO of Diageo, said at the time.

“The overall category is going through a correction, which is why it will take us through 2015 to get it back into growth.”

Just last week, Shui Jing Fang said its would make a loss in its first half, the Financial Times reports.

IWSR announced in June this year that the global spirits market experienced a “dramatic” dip in 2013 due to a slowdown in the consumption of local Chinese and India brands.

Meanwhile, it was recently reported that baijiu producers were seeking new markets in the US and Europe to counter on-going declines in China.

Diageo has not yet responded to The Spirits Business’ comment requests.