Chinese spirits plunge 56% in Diageo H1
Diageo saw organic sales fall by 2.8% in the first half (H1) of its 2026 fiscal year due to a weak US market and a double-digit drop for Chinese spirits.
The London-headquartered firm reported a 4% net sales decline to US$10.5 billion for the six months ended 31 December 2025. In the first quarter of fiscal 2026, Diageo reported flat organic sales.
Organic operating profit also declined by 2.8% due to ‘adverse market mix’ and tariff costs.
The Smirnoff and Johnnie Walker producer blamed its H1 sales drop on a ‘soft’ performance in the US as tighter disposable incomes hurt spirits revenue, alongside the ‘adverse impact’ of Chinese white spirits in Asia.
In an investor call for its H1 results, Diageo chief financial officer Nik Jhangiani noted that excluding the impact of Chinese white spirits, organic net sales dipped by approximately 0.5% while operating profit rose by 1.5%.
New CEO Sir Dave Lewis, who stepped into the role on 1 January, described the firm’s first-half performance as “mixed”.
“Only several weeks in I can already see significant opportunities for Diageo to act more decisively to enhance its competitiveness and broaden the portfolio offering leading to higher growth,” he said.
Lewis has pinpointed three immediate priorities: build competitive category strategies by winning with relevant brands, a focus on the customer, and a redesign of the Diageo operating framework.
To create “more financial flexibility”, Diageo has cut its dividend to shareholders to a “more appropriate level”, reducing it in half to 20 cents per share.
Lewis continued: “We are confident that this is the right action which will ensure that Diageo can reinforce its position as the leading international spirits business and drive stronger shareholder value over the coming year.”
In November, Diageo’s Indian arm began a strategic review of cricket business Royal Challengers Bengaluru. The group confirmed this ongoing review was “well advanced”.
The company added: “We do not intend to undertake future brand sales beyond the typical ongoing portfolio rationalisation consistent with our normal course of business going forward.”
Last month, a report circulated that Diageo was assessing the sale of its baijiu operation in China, but the group refused to comment. Diageo owns the Shui Jing Fang baijiu brand, among others.
Softness in US spirits
In terms of regions, two of Diageo’s markets were in decline in H1: North America (down by 6.8%) and Asia Pacific (down by 11.1%).
Europe managed to grow by 2.7%, while the Latin America and Caribbean (LAC) region was up by 4.9%, and Africa rose by 10.9%.
Within North America (Diageo’s biggest market with 36% of net sales), the group’s US spirits sales saw an organic drop of 9.3% after facing ‘competitive pressure and further category softness’, mainly in Tequila.
Sales in Canada were up by 2.3%.
India and travel retail were the only areas to grow in the Asia Pacific region, rising by 8.7% and 2% respectively.
India’s sales were boosted by Royal Challenge, Black & White, Signature, and Smirnoff.
Sales in Greater China plunged by 42.3%, driven by a 50.4% volume decline for Chinese white spirits. Diageo said sales were impacted by changes in market policy in China that affected the consumption of spirits, including a ban on alcohol at official events.
Sales in Australia dipped by 1.9%.
Looking at the European region – Diageo’s second-biggest market with 26% of sales – Turkey was the strongest performer. The country reported growth of 26.2% in organic sales due to double-digit growth for Johnnie Walker.
The Middle East and North Africa (MENA) region rose by 24.6%.
Sales in Iberia (Spain and Portugal) were down by 9.8%. Meanwhile, Central and Eastern Europe fell by 7.6%, and France was flat.
The group’s home market, Great Britain, rose by 2.9% led by Guinness. In its homeland, Diageo’s spirits sales declined by mid single digits.
The smaller LAC region was boosted by markets such as Colombia (up 16.9%), Brazil (up 6.5%) and Mexico (up 1.6%).
Jhangiani, who was previously interim CEO, added: “In the half, we grew or held total market share in circa 30% of markets measured by contribution to net sales. This result was clearly disappointing and was largely a reflection of performance in the US, which saw a 9bps TBA [total beverage alcohol] share loss, which represents c.35% of the total net sales value in measured markets.”
Tequila and Canadian whisky hinder Diageo sales
In terms of Diageo’s key categories, total spirits sales fell by 6%, while beer rose by 8% and ready-to-drink (RTD) soared by 17%.
The decline in spirits sales was led by Chinese white spirits, which plummeted by 56%. Tequila also struggled, falling by 17% as it suffered from “category down-trading”, and Canadian whisky was down by 8%.
Rum, Scotch and Indian-made foreign liquor (IMFL) were the only spirits categories to grow in organic sales, rising by 3%, 1% and 4% respectively.
Diageo’s US whiskey sales – which includes Bulleit Bourbon and Balcones – were down by 8%. Last August, Diageo temporarily ceased whiskey production at its Balcones and George Dickel distilleries in the US.
Looking at its key brands, most were in decline except for Johnnie Walker (up 2%), Guinness (up 11%) and Buchanan’s (up 13%).
Jhangiani noted that the group’s organic sales drop was almost entirely driven by three brands: Casamigos (down by 27%), Don Julio Tequila (down by 14%) and Canadian whisky Crown Royal (down by 8%).
In the US, Tequila net sales fell by 23.1%. Don Julio (which was down by 20.9%) lost share in the Tequila category and in total spirits, Diageo noted, with the group aiming to focus on actions to improve its performance. Casamigos sales plunged by 30.9% in the US, reflecting increased competition and a reduction in distributor inventories due to ‘softer demand’.
Regarding Diageo’s agave spirits performance, Jhangiani said: “This was exacerbated by both ongoing Tequila litigation and media on additives and adulteration – two separate issues, but both negatively impacting consumer sentiment.
“We continue to view the litigation claims as baseless and are pushing for case dismissal in New York. We are also working with industry influencers to inform the narrative, and we are confident that our Tequilas are crafted from 100% Blue agave.”
Meanwhile, Smirnoff, Captain Morgan rum and IMFL brand McDowell’s each recorded a 3% drop. Irish cream liqueur Baileys dipped by 1%.
Jhangiani also provided an update on the group’s Accelerate programme, adding that “around 50% of the US$625 million of total savings [are] now expected to be delivered in fiscal 26”.
Outlook for fiscal 2026
Diageo has updated its organic sales guidance for its fiscal 2026 year to a decrease of 2-3% because of a weak US market and the impact of Chinese white spirits.
Organic operating profit for the full year is now expected to be flat or up by low single digits, following Diageo’s previous forecast of low to mid-single digit growth.
Jhangiani said this readjustment includes the impact of tariffs, based on the current 10% rate on UK imports and 15% EU rate, alongside the US-Mexico-Canada exemption.
“However, we note that the recent ruling on tariff policy by the United States Supreme Court has increased uncertainty and potentially increased risk surrounding the impact of US tariff policy, which we continue to monitor and have not updated our guidance for this,” he warned.
In Diageo’s previous financial year, covering the 12 months to 30 June 2025, organic sales rose by 1.7%.
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