Diageo Ups Its Stake In Baijiu Amidst Spirit's Plunging Sales

    Global drinks giant Diageo's consolidation of control over distiller Shui Jing Fang shows the conglomerate's faith that baijiu can rebound from its current slump and catch on with drinkers across the world.
    Jing Daily
    Jing DailyAuthor
      Published   in Finance

    The fiery Chinese spirit baijiu has been having a rough year with low sales and plummeting prices in the wake of the government’s anti-corruption campaign, but global drinks conglomerate Diageo has shown its faith in the liquor’s long-term success by announcing today its consolidated control over Shui Jing Fang, a premier Sichuan-based distiller which says it has been producing baijiu since 1408.

    According to Bloomberg, the acquisition came after being approved by Chinese authorities, and marks a significant investment for Diageo:

    Diageo got approval from Chinese authorities to buy the remaining 47 percent of Sichuan Chengdu Shuijingfang Group Company Ltd. from its partners, it said today in a statement. The acquisition of the stake in the related joint venture, at a cost of about 233 million pounds ($358 million), will give Diageo full indirect control over 39.7 percent of Shuijingfang, the listed maker of baijiu.

    This move is particularly bold given the fact that news continues to roll in that baijiu-makers are struggling in the wake on the government’s ban on fancy banquets and crackdown on expensive gifting practices. Plunging sales and stock prices of some of China’s most prestigious distillers, including Sichuan-based Wuliangye and Guizhou-based Kweichow Moutai Co Ltd, have prompted major price slashes. For example, Kweichow announced this month that it will be selling its bottles at discounted prices through an online retailer, while Wuliangye plans to tap the middle market with two new product lines priced at only 100 to 400 yuan, a huge divergence from the brand’s peak price of 1500 RMB per bottle and even from its presentlty deflated rate of 800 RMB.

    High-end dealers are currently coping with these low prices by stocking up on and hoarding high-end bottles in hopes that sales and prices will bounce back. According to a Drinks Business article,

    However, with prices now at their lowest for the last three years, consumers and businesses have been stockpiling Baijiu. Many of them are anticipating a surge in Baijiu demand in the upcoming festivities of the Mid-Autumn Festival (19 September) and the Chinese National Day (1 October) where Baijiu is commonplace for consuming at dinners and for using as gifts.

    One retailer commented, Baijiu has a long shelf life, and by getting them now at a much cheaper price, it is going to save me over ¥20,000.”

    Unlike these local sellers, global drinks giant Diageo doesn’t plan to rest on its laurels and wait for a domestic rebound. With factors such as increasingly fierce competition from red wine and a crackdown that isn’t set to end anytime soon, a major part of the corporation’s vision for the future of baijiu is marketing the liquor abroad. According to President of Diageo Asia Pacific Gilbert Ghostine, the company’s goal is to “build Shuijingfang into the leading international Bai Jiu brand.” So far, the brand has waged intense marketing efforts abroad for Shui Jing Fang, especially in London, and has global launches planned for countries throughout the world this year, including Italy, Qatar, Spain, and the United Arab Emirates. The company also hired its first American general manager, James Rice, who recently expressed his optimism for the global appeal of baijiu. In the video below, Rice tells Reuters that because Chinese people have adapted to drinking foreign beverages such as coffee, "I think foreigners can learn how to drink baijiu the same way."

    Diageo's faith in the global promise of baijiu is clearly representative of long-term thinking. The company has been slowly investing incrementally larger amounts in Shui Jing Fang for six years, and while it waits for the drink to catch on with foreigners in high-end restaurants, bars, and liquor stores outside of China, it will have the massive and growing international Chinese tourist market to bank on. The wait for baijiu to break out globally may be shorter than you think, however—just today, a restaurant in Chicago just announced that it will be offering a $25 baijiu cocktail.

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