Diageo’s profits down 400 millin euros due to Chinese crackdown on corruption
UK based spirits group Diageo reported this week the value of its stake in Shui Jing Fang, which opened its first distillery in 1408, dived after sales tumbled 78% in the year to 30 June amid heavy price competition from rival brands and action by the Chinese government to curb use of luxury goods by officials. Scotch also took a hit, with Johnnie Walker Black Label’s sales down 28% in the country.
The crackdown has affected a number of western luxury brand’s hopes in the fast-growing economy, with cognac maker Rémy Cointreau and British clothing brand Burberry among those affected. Growth in China’s luxury market slowed to about 2% in 2013 from 7% in 2012, according to consultancy Bain.
Diageo paid £250m for a controlling 40% stake in Shui Jing Fang in 2012 when sales of luxury goods were burgeoning in China. But a change of government later that year led to a crackdown on corruption, announced by China’s president, Xi Jinping, in 2013.