Diageo reviews China assets, considers divestments as portfolio streamlining continues
Diageo explores options for its China business as the spirits giant accelerates global portfolio rationalisation.
CHINA – Diageo plc is reviewing strategic options for its assets in China, including potential divestments, as the Guinness and Johnnie Walker owner continues to streamline its global portfolio, according to people familiar with the matter.
Citing unnamed sources, Bloomberg reported that Diageo has appointed Goldman Sachs and UBS to conduct a review of its Chinese assets. The company has also tested interest among local industry players and private-equity firms, the report said.
Diageo lists its principal activities in Greater China as “distilling [and] warehousing”, alongside the marketing of Chinese whisky and white spirits. The UK-based drinks group owns one distillery in China and holds a 63.16% stake in Sichuan Swellfun Co. It also distributes a selection of its international brands in the market.
In its most recent full financial year ended 30 June, Diageo recorded an 8.4% organic increase in sales volumes in Greater China. However, net sales in the region declined 9% on an organic basis.
In its annual report, Diageo cited “challenging economic conditions” in China and said it had shifted its portfolio towards white spirits and lower-aged malt whiskies. The company noted that this strategy supported volume growth but “resulted in negative price/mix”.
The group also said its Chinese white spirits business faced tougher comparatives after a prior year of “strong double-digit growth” and was affected by “reduced consumption occasions” in the baijiu market. During the year, Diageo reduced its marketing investment in China as part of broader cost controls.
The potential review of Chinese assets comes as Diageo continues to reshape its global footprint amid slowing alcohol consumption and weaker demand for premium spirits in key markets. In November, the company cut its forecasts for sales and profit growth, citing pressure in Chinese white spirits and a soft consumer environment in the US.
Late last year, Diageo agreed to sell its business in Kenya, including its majority stake in East African Breweries, to Asahi Group Holdings for US$2.3 billion. The transaction is currently subject to a legal challenge filed by Kenyan distributor Bia Tosha.
Other recent disposals include the sale of Diageo’s stake in Guinness Ghana Breweries to Castel last February and the divestment of Cacique rum to La Martiniquaise-Bardinet in March.
In May, Diageo chief financial officer Nik Jhangiani said the Gordon’s gin owner could make “substantial changes” to its portfolio through asset disposals, following the announcement of plans to deliver around US$500 million in cost savings over three years.
Sir Dave Lewis, former Tesco and Unilever executive, took over as Diageo chief executive on 1 January, succeeding Debra Crew, who departed the company in July by mutual agreement.
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