Diageo to buy 43% in China’s oldest distillery
Diageo, the world’s largest liquor maker, plans to make its first acquisition in China by buying shares in Sichuan Swellfun, the nation’s oldest distiller of the white spirit known as ‘baijiu’.
Diageo will buy a 43% stake in Sichuan Chengdu Quanxing, parent of Swellfun, the Chinese company said in a statement, without disclosing financial terms. Beverage makers, including Diageo, InBev NV and Anheuser-Busch are making acquisitions in the world’s most populous nation, betting rising incomes will boost demand for alcohol.
China is set to surpass Japan as the world’s second-largest spirits maker by value with sales estimated to reach $11.4 billion this year. “Quanxing has an extensive distribution network all over China and Diageo could leverage that to sell its liquor,” said Yang Lei, a Shanghai-based analyst at ABN Amro Holding.
“High-end liquor will deliver very strong growth in the next five years, mainly due to the increasing disposable income of Chinese people.” Shares of Swellfun, which is based in the southern province of Sichuan, lost 2.4% to 12.76 yuan in morning trade in Shanghai.
Diageo Highlands Holdings will buy the stake from Chengdu Yingsheng Investment Holdings, the statement said. Swellfun markets its liquor to China’s wealthier consumers and competes with Kweichow Moutai, which produces a well-known spirit brand. A bottle of Swellfund is sold for about 600 yuan, against the average price of 3 yuan for beer, 5 yuan for spirits and 25 yuan for wine.
The company began producing ‘baijiu’ 600 years ago at the end of the Mongol rein in China during the Yuan Dynasty. Kweichow Moutai, the maker of spirit that was used to toast former US president Richard Nixon, plans to boost capacity by 2,000 tons a year by 2008. Chinese spirit production jumped 22% in the first half to 1.93 million tonnes.
Overseas wine companies spent 1.1 billion yuan ($140 million) advertising their products in China last year, 156% more than a year earlier, with the most spent on Pernod Ricard’s Chivas Regal, according to CTR Market Research.
Diageo, which gets a third of its profit from its international unit, plans to commit more resources to developing regions including Asia, where the company raised liquor sales by 15% in its latest fiscal year. Diageo entered China in 1995, selling imported brands including Johnnie Walker and J&B.
The company has had “double- digit” sales growth in the mainland in recent years, the company’s China spokesman, Michael Lu, said. Other Diageo brands sold in China include Smirnoff and Baileys. Remy Cointreau, the maker of Remy Martin cognac, in 1980 co-founded Dynasty Fine Wines Group, as the overseas foreign company to own a Chinese wine venture.
InBev, the maker of Beck’s and Stella Artois, in June closed the purchase of Fujian Sedrin Brewery, giving the Leuven, Belgium-based company a foothold in China’s southeastern province.
Anheuser-Busch, the world’s biggest brewer, has in the past few years lifted its stake in Tsingtao Brewery to 27%. SABMiller in 2001 bought a stake in China Resources Snow Breweries, and the venture has become Asia’s biggest brewer by sales volume.
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