Diageo ‘shelves’ £240m Chinese scheme

Swellfun, the Chinese subsidiary of drinks giant Diageo, has reportedly postponed work on a £237 million construction project to build a liquor-producing industrial park in Chengdu.

Diageo CEO Ivan Menezes has spoken about the “tough conditions” affecting the company’s performance in China (Photo: Diageo)

News reports in China claim that a company spokesperson from Swellfun, a spirits producer taken over by Diageo in 2013, has confirmed that plans for “Chinese liquor brand industrial park” have been shelved.

The drinks business has contacted Diageo for confirmation.

If true, this setback for Diageo would be the latest symptom of the Chinese economic slowdown and the country’s restrictions on expensive gift-giving, both of which have hit the world’s largest spirits producer hard.

With a focus on emerging markets, Diageo has poured investment into Asia, especially China and India – investment that is yet to fully reap any benefits.

In its latest financial results announcement in April, Diageo revealed that organic sales in the Asia-Pacific region fell by 6% in the first quarter of 2015.

In 2014, Diageo’s sales in the Chinese market tumbled by 14%, and its flagship category, Scotch, declined by 22% in the six months to 31 December 2014, despite its blockbuster Haig Club release in November.

The company is suffering from “tough conditions in the emerging markets” such as China, as well as “subdued consumer demand in some developed markets,” Ivan Menezes, Diageo CEO, said.

UPDATE: 03/07/2015
A Diageo spokesperson has confirmed to the drinks business that the plans for the park have been shelved: “We can confirm Sichuan Swellfun Co. Ltd. decided not to proceed with the construction of a Shui Jing Fang production site in Qionglai, Chengdu. The Qionglai site will now be used for storage purposes and there are currently no plans to restart the construction of a production site there. Diageo remains confident in the medium to long-term opportunity in China.”