The world's largest spirits maker, Diageo, is reportedly considering a major strategic shift in Asia. New chief executive Dave Lewis, who only took the helm on 1 January, is said to be reviewing the potential sale of the company's assets in China.
Reviewing Operations in a Challenging Market
According to a report from Bloomberg News, Diageo is working with investment banks Goldman Sachs and UBS to assess its operations in China. The review comes after the London-based company, which also owns Smirnoff vodka and Captain Morgan rum, flagged a double-digit sales decline in the market last November.
The company's key Chinese asset is a 63% stake in Shanghai-listed Sichuan Swellfun, a Chengdu-based firm that distributes the traditional distilled spirit Baijiu. Shares in Sichuan Swellfun have fallen by 14% over the past year, giving it a market valuation of approximately 19.2 billion yuan (£2 billion). The banks are understood to be sounding out interest from potential Chinese strategic buyers and private equity firms.
'Drastic Dave' Lewis Begins His Tenure
The potential divestment aligns with the early actions of CEO Dave Lewis, who earned the nickname 'Drastic Dave' during his long career at Unilever for his rigorous cost-cutting. He later led a major turnaround at Tesco, Britain's biggest supermarket chain, following an accounting scandal.
His strategy at Diageo appears to focus on streamlining the portfolio. This follows last month's announcement of the sale of its 65% stake in East African Breweries for $2.3bn, which offloaded its last direct African beer operation. The company faces several headwinds, including the impact of tariffs, high debt levels, and changing consumer habits as younger people drink less alcohol.
Navigating a Complex Legacy
Lewis took over from Debra Crew, whose brief tenure was marked by a shock profits warning in 2023 due to supply issues and falling consumption in Latin America and the Caribbean. She had been appointed after the untimely death of the highly regarded former CEO, Ivan Menezes.
Diageo also faced supply problems closer to home, with a shortage of Guinness affecting UK pubs in the run-up to Christmas last year. The company declined to comment on the reports regarding its Chinese assets. This potential move underscores the significant challenges and strategic recalibration facing the global drinks giant under its new leadership.
