Diageo gets into the spirit of things with China deal

The UK's largest drinks company has finally got control of China's oldest baijiu brewer. A significant step - though not necessarily a sea change.

by Emma Haslett
Last Updated: 28 Jun 2011
Bottoms-up at Diageo this morning: the drinks company has finally managed to acquire a controlling stake in Chinese drinks firm Sichuan Chengdu Quanxing Group. That means Diageo now owns ShuiJingFang, one of China's biggest brands of baijiu - a fiery spirit so popular that it accounts for 30% of the country's alcoholic drinks market. That's an impressive coup in a country where it's infamously hard to make acquisitions of this type - but is, as Diageo CEO Paul Walsh puts it, ‘one of the largest, fastest growing spirits segments in the world’. And it means we could all be drinking baijiu before too long...

This isn’t an entirely new foray for Diageo - it already owns 49% of SCQG, and is only planning to buy another 4% of the company, shelling out 140m yuan (£13m) for the privilege. But it’s significant nonetheless - because in giving Diageo a controlling stake in the company, it marks the first time a foreign company has managed to gain control of a popular brand in China. Usually, the country's authorities are deeply unenthusiastic about foreigners getting their hands on well-established brands.

Today's news certainly bodes well for Anglo-Chinese relations (particularly following the £1.4bn worth of deals announced during Chinese premier Wen Jiabao’s trip to the UK). But will it help to pave the way for other UK businesses looking to expand into the lucrative Chinese market? Well, not necessarily, seems to be the short answer. This has been a long, slow process: Diageo announced its intention to increase its stake in SCQG a good 16 months ago, but the deal was only sealed after David Cameron and Wen Jiabao waded into negotiations. And while Cameron has, on several occasions, pointed out that more British companies should be getting into the Chinese market, he can hardly get involved every time a UK firm wants to do a deal in China...

Anyway, Diageo probably won't be too bothered about that. Having finally got its controlling stake, it now claims to have high hopes for baijiu (the taste of which has been previously likened to paint thinner, although MT thinks that's rather unkind). The first thing it wants to do is buy ShuiJingFang outright (cue another prolonged negotiation), before turning the spirit into an ‘internationally successful iconic Chinese brand’, according to Diageo’s president of Asia Pacific, the brilliantly named Gilbert Ghostine.

Apparently, it's already made some waves in the foreign market – Diageo has been selling ShuiJingFang at Dallas and Chicago airports, and it wants to expand that to ‘two additional’ US airports by the end of the year. So look out for baijiu: coming soon to a duty free near you...

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