BARELY a year into Chinese President Xi Jinping’s push to crack down on bribery and corruption, and the effects are already being felt round the world.
Earlier this month the country’s government hailed a 13.3 per cent increase in the number of people punished under the new regime last year, but Diageo’s Chinese woes imply even more are eschewing the premium spirits popular at hospitality events and as gifts.
Sales at Shui Jing Fang, which makes baiju – a clear, white spirit that can cost up to $1,000 a bottle – fell by 66 per cent in the last six months of 2013, driving a 22 per cent drop in total sales. China’s enforced sobriety is squeezing sales dry.
But luckily for investors, not every developing market has ditched its drinking habits. Strong whisky sales in Russia and eastern Europe led net sales five per cent higher, while the popularity of Brazilian cachaca drove Latin America to eight per cent growth.
The trick for Diageo now is to make sure it is investing in the right areas – and ditching those that don’t work. This week’s acquisition of Peligroso tequila was a strong move, filling the gaping hole left by Jose Cuervo, but there is more that needs to be done.
As craft brewers boom and core markets – such as Nigeria – switch to cheaper brands, Diageo’s beer sales have been struggling. It’s time for chief executive Ivan Menezes to take a long hard look at whether that part of the business is worth holding on to.