Exclusive - CAGE 2013 - Diageo set fair in China, despite tighter gifting controls

By | 19 March 2013

Diageo operates in both domestic and international spirits in China

Diageo operates in both domestic and international spirits in China

Diageo's sales in China have stayed firm despite stricter controls covering inter-governmental gifting and banqueting, according to the firm's chief operating officer.

The country's authorities enforced a ban late last year on high-level luxury banquets and forbade high-ranking military officials from “indulging in alcohol” on official visits. The move hit the share prices of many local spirits companies, including baijiu producer Kweichow Moutai.

But speaking at day one of the Consumer Analyst Group of Europe in London yesterday (18 March), chief operating officer Ivan Menezes said that both Diageo's international spirits brands and its domestic ShuiJingFang spirits division, had not been troubled by the bans.

“Our business in China is not that dependent on the classic institutional sales and classic gifting, which is where the downturn is happening right now," he told delegates. “We've got a Scotch whisky business where the key growth is coming from super-deluxe: Johnnie Walker Odyssey costs around US$1,000 a bottle. A lot of it is consumed in the on-premise, it's not the institutional government-to-government gifting. Scotch doesn't play there.

“While our ShuiJingFang baijiu business is an ultra-premium business,” Menezes continued, “it's less dependent on institutional sales than the big Chinese players. So, we've taken less of an impact there.”

Menezes also highlighted “very fast” growth for the Baileys Original Irish Cream liqueur brand in the country.

“We were not that heavily reliant (on gifting) to begin with, and we're just at the starting stages of building the business in China,” he added.

In the Q&A session, when asked about the prospect of consolidation within the US spirits industry, Menezes said that, in the long-term, M&A could play a part in the country.

“The development of craft distilling in the US is positive for spirits,” he said. “It brings more interest into the category and is recruiting new young LDA adults into spirits directly. I view all this as positive.

“In terms of the long-term industry structure," he continued, "the sheer economic forces will lead to more consolidation in the US. The pace and shape of it is a little uncertain, but we clearly study it.”

Menezes was appointed COO last year, and is widely-tipped to replace CEO Paul Walsh in 2014.

Expert analysis

The Future of the Spirits Market in China, to 2016

Future of the Spirits Market in China, to 2016 is the result of extensive market research covering the Spirits market in China. The report provides the latest, highly detailed information on dynamics in Chinese Spirits market, providing marketers with the essential information to understand their own, and their competitors’, position in the market and the information to accurately identify where to compete in the future.

Sectors: Emerging markets – BRIC, Spirits

Companies: Diageo, Johnnie Walker

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