BREAKINGVIEWS-A Diageo China shakeup deserves a bigger round

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Katrina Hamlin

HONG KONG, FEb 4 (Reuters Breakingviews) - Diageo’s DGE.L stock is in need of refreshment. The Guinness maker’s new CEO Dave Lewis may begin the process by flogging assets in China, as per Bloomberg. Dumping its stake in Sichuan Swellfun 600779.SS, which makes the country’s favourite spirit, would be a strong start. But to boost investor spirits Lewis will need to follow up with another round of sales.

Like many large consumer goods groups Diageo is grappling with a weak Chinese business as consumer confidence still remains far below pre-Covid levels. In the $52 billion drinks maker’s most recent results, interim CFO Deirdre Mahlan said problems in the world’s second-largest economy dragged down overall performance, as global sales slipped 2.2% in the three months to September. The business consists of a portfolio of world-famous labels like Johnnie Walker whisky which sits alongside a 63% stake in baijiu maker Swellfun. The international brands are prospering as affluent consumers reach for premium options. The baijiu business is more volatile.

The potent tipple is a tradition at formal banquets in the Middle Kingdom but is vulnerable to Chinese President Xi Jinping’s ongoing corruption crackdown. Swellfun sales fell some 38% in the first nine months of 2025. The Shanghai-listed group has also repeatedly rejigged management and strategy. For instance, it fell far short of its target of deriving 40% of its sales from abroad. In 2024, these revenues only made up 1% of the total, Morningstar analyst Jennifer Song notes.

Selling Swellfun, however, would be a bold move. The company is a trophy asset – none of Diageo’s multinational rivals boast a baijiu brand. And the timing may not be ideal: From 2006, Diageo invested 1.1 billion pounds in the business, annual reports show. Today, twenty years after the first deal, the stake is worth 1.5 billion pounds, around $1.9 billion, and the shares are languishing more than 70% below their 2021 peak.

Still, selling the China business could prove “Drastic Dave”, a namesake he coined during his tenure at Tesco TSCO.L which was marked by aggressive restructuring, intends to do for Diageo what he did at the UK supermarket chain. The Tesco turnaround saw him offload non-core businesses including in China which took the supermarket chain from racking up some of the largest losses in British corporate history to robust growth.

Luckily for Lewis, there is more fat to cut: In India, the group is already reviewing ownership of a cricket team that could be worth some $2 billion, per media reports. From Asia to Latin America, the maker of Don Julio tequila has a portfolio of local spirits and could consider offloading more underperforming niche names. Odds and ends, such as a whisky distillery on the edge of the Tibetan plateau, could also be tipped out.

China would be a good place to start Diageo’s shakeup; and if the first shot goes down easy it could whet the appetite for a bigger asset sale binge.

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CONTEXT NEWS

Diageo is weighing options for its China assets, including a sale, Bloomberg News reported on January 13, citing people familiar with the matter.

Diageo is working with Goldman Sachs and UBS to review operations, including a more than 63% stake in Sichuan, which makes and sells the Chinese distilled spirit Baiju, Bloomberg News said.

The company’s new CEO Dave Lewis took up his position on January 1.

(Editing by Aimee Donnellan; Production by Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on HAMLIN/katrina.hamlin@thomsonreuters.com; Reuters Messaging: katrina.hamlin.thomsonreuters.com@reuters.net))