Diageo share price: Chinese subsidiary shelves £237m project

on Jul 2, 2015
Updated: Oct 21, 2019

Diageo’s (LON:DGE) Chinese subsidiary, Swellfun, has shelved a £237 million construction project to build a liquor-producing industrial park in Chengdu, according to regional media sources. Swellfun spokesperson Yuan Yiwei has reportedly told Guangzhou’s Time Weekly that the company had abandoned the plans due to the recent anti-graft campaign in the country.

Diageo acquired the struggling Swellfun spirits brand based in Sichuan in 2013. The brand has been in the red during the last two years, with sales plunging 78 percent in 2013-14 financial year. The dismal performance led to the ousting of Huang Jianyong, former chairman of Swellfun, who was succeeded by Chen Shoqin, former managing director of Diageo Greater China.
Insiders have attributed Swellfun’s woes to Diageo’s “misguided” policies, such as its focus on the production of Western brands in contrast to Swellfun’s expertise in indigenous spirits. “Many of Diageo’s policies reflect their innocence towards the Chinese market, leading to sales declines and a talent drain,” Xiao Chuqing, a marketing expert for liquor, told Guangzhou’s Time Weekly.
The Swellfun project termination — which has not yet been formally confirmed — would mark the latest setback for Diageo in China amid the country’s ongoing economic slowdown and restrictions on expensive gift-giving. In its latest financial results announcement in April, the world’s largest spirits producer revealed that organic sales in the Asia-Pacific region had fallen by six percent in the first quarter of 2015. 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 at the time of the announcement.
Diageo’s stock has been trading in positive territory so far today. By 15:00 BST, shares in the FTSE 100-listed drinks giant had risen 0.53 percent to 1,884.50p.
As of 15:10 BST, Thursday, 02 July, Diageo plc share price is 1,882.25p.