James Wilmore

just On Call - Diageo expects China softness to remain in 2013

By | 14 May 2013

Diageo is forecasting continuing tough times in China

Diageo is forecasting continuing tough times in China

Diageo's Asia-Pacific boss expects the spirits market in China to remain "soft" for the rest of 2013, but is encouraged by the performance of the company's super-deluxe Scotch whisky brands in the country.

During an investors conference call today (14 May), Gilbert Ghostine, Diageo's Asia-Pacific president, said that all alcohol catagories had been affected by the Chinese government's "anti-extravagance" crackdown introduced late last year. Baijiu and high-end Cognac have been worst affected by the crackdown, compared to Scotch, he said. 

In particular, sales of Diageo's baijiu brand, ShuiJingFang, have been "weak", falling by around 40% in the first calendar quarter of 2013, Ghostine said, with the affects of a late Chinese New Year also having an impact. But, he added: "We strongly believe in the underlying growth of the Chinese white spirits category." 

Looking forward, Ghostine said: "I see China continuing to be soft until the end of the calendar year." 

However, he sounded a more positive note on the "super-deluxe" Scotch sub-category in China. The whisky category as a whole in the Asian country is flat in value in the year-to-date, but super-premium Scotch is growing at 18% for Diageo, Ghostine noted. "That's what's really exciting us," he said.

On Korea, he flagged that the group is being affected by a "decline" in the country's traditional on-trade outlets. "I see this decline continuing over the next three to five years," Ghostine said. But, he added that outside this sector, in the "modern" on-trade and off-trade, Diageo's business is growing by around 19%. 

On Diageo's bid for full control of United Spirits in India, Ghostine said he is "comfortable" with the current situation and still expects the deal to complete by next month, but does not have concerns if the deal misses this deadline.

Expert analysis

Diageo plc (DGE) - Financial and Strategic SWOT Analysis Review

Diageo plc (Diageo) is one of the world's leading companies in the beverage alcohol industry. The company carries out the production and distribution of spirits, beer and wine. The key brands of the company include Johnnie Walker, Smirnoff, Captain Morgan, Baileys Original Irish Cream, J&B, Tanqueray, Guinness, Crown Royal Canadian, Beaulieu Vineyard and Sterling Vineyards, and Bushmills Irish. Diageo also has distribution rights for the Jose Cuervo tequila brands in North America and various other markets.

Sectors: Emerging markets – BRIC, Spirits

Companies: Diageo, United Spirits

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