Diageo Sees China Growth As It Counters Austerity Drive
Diageo Plc, the world’s biggest distiller, expects its business in China to return to growth from the end of 2016, as the company overcomes austerity measures that have curtailed demand.
The London-based maker of Johnnie Walker whisky and Smirnoff vodka plans to boost Chinese sales by focusing on consumers who purchase liquor for their own consumption, rather than as gifts, chief executive officer Ivan Menezes said. The government’s frugality drive has crimped demand for high-end spirits that are used for gifting and in banquets, he said in a recent interview in Singapore.
“The overall high-end spirit market continues to be challenging, but I’m very confident in the medium- to long-term trends in China,” Menezes said. “GDP is strong, the emerging middle-class and urbanisation trends are strong. China’s very important for us.”
Chinese President Xi Jinping’s two-year crackdown on corruption and lavish spending has slowed sales for luxury goods, including premium liquor and watches. As Xi’s campaign is broadening its reach in its third year, his battle is trickling down to the middle class. Goldman Sachs Group Inc. estimated that $600 billion worth of gifts, perks and other 'grey income' had been enjoyed by the country’s urban office workers.
Demand for Western spirits, including those from Diageo, is expected to grow 3 per cent this year, compared with an estimated 10-per-cent decline in the second half of 2014, according to a Goldman Sachs report on 16 March. Wine and spirits are among the top four gift choices for Chinese, according to the report, citing a Hurun survey.
News by Bloomberg, edited by ESM