Luxury liquors dip in China

21 October 2013
BEIJING: Luxury drinks giants Diageo and Rémy Cointreau have reported reduced sales in China in a further sign that the government's crackdown on gift-giving and ostentatious displays of wealth by state officials is hitting the luxury goods sector.

Diageo, the world's largest spirits company, said overall sales growth in the Asia-Pacific region slowed to 0.6% in the quarter to the end of September 2013, down from 2% in the same period last year, and linked the impact to China's clampdown.

This included a sharp fall in sales of its Shui Jing Fang rice spirit brand, the Wall Street Journal reported, which Euromonitor has estimated represents half of the country's alcohol sales.

However, the company said sales of its super-premium and ultra-premium Scotch whisky brands remained buoyant.

Echoing concerns about how Diageo is faring in China, French drinks company Rémy Cointreau also attributed "certain measures taken in China" to a fall in sales.

It said overall global sales fell to €294.4m over the second quarter, dragged down by a sharp fall in sales of its key Rémy Martin cognac in China, which usually accounts for 40% of its operating profit.

Sales have been in decline partly because local wholesalers have run down large cognac inventories amid sluggish demand during the Chinese New Year sales season.

Chinese New Year, which takes place on January 31 next year, will be crucial in reviving the fortunes of the spirits companies, said Trevor Stirling, an analyst at Sanford C. Bernstein.

But he warned the "the squeeze continues" regarding the clampdown on gift-giving and Rémy Cointreau confirmed it expected China to depress sales in the next quarter.

By contrast, Peroni-brewer SABMiller reported strong growth of 14% in China, where its CR Snow joint venture is the country's largest beer brand.

Data sourced from Wall Street Journal; additional content by Warc staff
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