Baijiu helps lift Diageo's spirits in China

British drink giant Diageo Plc's baijiu brand Shui Jing Fang drove the company's growth in China as it is expected to cut market spending on deluxe Scotch in the country.

According to its interim results for the year ended Dec 31, its net sales in China increased 4 percent. The performance of Shui Jing Fang continued to improve with net sales up 81 percent.

Its marketing spending was down 2 percent as a result of reduced spending on Johnnie Walker Black Label and Blue Label in China.

In China, net sales of international spirits were down 40 percent, largely due to Scotch, which was down 42 percent as the effects of the government's anti-extravagance measures persist and competition increases, said the report.

Ivan Menezes, chief executive of Diageo, said sales of Scotch in total were down in China.

"It's mostly deluxe Scotch and it's primarily driven by a very conscious decision from us to back off the very high cost of investment" in the hotel bar and restaurant sector, said Menezes.

He added that most deluxe Scotch is sold through contracts with hotels, bars and restaurants.

"It is not profitable business and that segment of consumption is still declining in China, so we are backing off it."

Sichuan Swellfun Co Ltd has appointed Fan Xiangfu as its general manager beginning Oct 5, to take over from James Rice.

Fan previously worked in senior management positions for Guinness, Heineken and Carlsberg.

There is potential for baijiu in the Western markets, in particular among younger people who are interested in foreign and exotic brands and tend to follow the "East meets West" trend, said David Zhang, senior drink analyst of Mintel Group Ltd.

However, it is difficult to translate such trends into actual market performance.

For Diageo, the key question is whom they would target as the consumers of their baijiu products, said Zhang.

"It could become a niche choice among those trendy young consumers and high income Westerners looking for the next big thing. However, if it is looking to enter the mainstream market, it will take years or a decade," he said.

According to Mintel's China Spirit Report of 2015, signs of gradual recovery were evident in 2015 after more than a year of adjustment. Retail value growth will be 4 percent in 2015 after a decline of 1.7 percent in 2014.