The world's largest spirits company, Diageo, is reportedly exploring a sale of its assets in China. This strategic review forms a key part of new chief executive Dave Lewis's plan to streamline the portfolio of the Guinness and Johnnie Walker owner.
Pressure in China Triggers Strategic Review
According to a report from Bloomberg News, Diageo is working with investment banks Goldman Sachs and UBS to assess its operations in the Chinese market. The move comes after the company flagged a double-digit decline in sales in the region last November.
The most significant asset under review is Diageo's majority stake of over 63% in Shanghai-listed Sichuan Swellfun. This Chengdu-based company is a distributor of Baiju, a traditional Chinese distilled spirit. The banks involved have reportedly begun to gauge interest from potential Chinese strategic buyers and private equity firms.
Market performance reflects the challenges, with shares in Sichuan Swellfun falling by 14% over the past year. The company currently holds a market valuation of approximately 19.2 billion yuan, equivalent to around £2 billion.
'Drastic Dave' Lewis Takes the Helm
Dave Lewis, the former Tesco boss who officially started as Diageo's CEO on 1 January 2024, brings a reputation for decisive action. Known as "Drastic Dave" from his long tenure at Unilever, he is recognised for rigorous cost-cutting.
His most recent role saw him revive Tesco after a damaging accounting scandal, a process that involved slimming down its international operations, closing unprofitable divisions, and cutting thousands of jobs. His appointment at Diageo follows the tenure of Debra Crew, who served as CEO in 2023 after the sudden death of the highly regarded Ivan Menezes.
A Broader Context of Challenges and Change
The review of Chinese assets is not an isolated action. Diageo, which is headquartered in London, faces a confluence of pressures including the impact of US tariffs from the Trump era, high debt levels, and shifting consumer habits as younger generations drink less alcohol.
The company has already begun a wider portfolio streamlining process. Just last month, Diageo announced the $2.3 billion (£1.7bn) sale of its 65% stake in East African Breweries, marking its exit from direct beer operations in Africa.
Crew's brief time as CEO was marked by a profits warning in late 2023, driven by supply chain issues and falling consumption of premium brands in Latin America and the Caribbean. The company also faced supply problems with its flagship Guinness stout in the UK in the run-up to Christmas, leading to rationing for some pubs.
When approached for comment on the reported asset sale, Diageo declined.
