Chinese crackdown on gifting expected to hit Diageo's full year results

By Erin Smith

Published: 28 July, 2014

The crackdown in China on luxury products and gifting continues to hit major drinks players with Diageo expected to announce a further drop in sales in the country in its full year results this week including another hit on its premium baijiu brand, Shui Jing Fang.

The crackdown in China on luxury products and gifting continues to hit major drinks players with Diageo expected to announce a value write down on its premium baijiu brand, Shui Jing Fang in its full year results set to be released this week.

In January Diageo reported a 23% drop in sales in China for the first half of the year with a key contributing factor being a 66% decline in sales of Shui Jing Fang. The luxury Baijiu brand had been widely used at major Chinese official banquets prior to the government's crackdown on such events and extravagant gift-giving.

In April, Diageo blamed political instability in its key emerging regions, including China, as a key factor in lack-lustre growth in the nine months leading up to its Q3 results, which saw a 19% decline in net sales in its Asia Pacific markets. It stated in its Q3 report that: "It was a weak quarter in Asia Pacific with South East Asia seeing further negative impact from the political instability in Thailand."

Several other drinks giants have faced equal challenges in China and wider Asian markets. Rémy Cointreau, for example, has been particularly badly hit primarily due to over exposure of its Remy Martin Cognac brand in Asian markets. The company released its Q1 results last week, which showed a continued decline of 5.7%.

Louis Vutton Moët Hennessy (LVMH) also released its half yearly results last week, stating that anti-extravagance measures in China were dragging down the luxury group's wine and spirits business division. It said its results "essentially reflects the performance of Cognac in China, linked to destocking by distributors, which continued in the second quarter".

Diageo is set to release its yearly financial results on July 31.

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