Global spirits giant Diageo is facing renewed scrutiny in China as widespread reports of layoffs at its baijiu subsidiary Shui Jing Fang (水井坊) continue to circulate across Chinese social media, despite efforts to suppress them.
Articles published by Chinese-language WeChat accounts “Guojiu Think Tank” and “Daily Sugar and Alcohol Fair” alleged that Shui Jing Fang had initiated mass layoffs. One article, titled “Mass Layoffs at Shui Jing Fang,” and another titled “5% Layoffs at Shui Jing Fang? Another Domino Falls in Baijiu’s Downsizing,” claimed the entire department responsible for the high-end product line Di Yi Fang was dissolved.
Both articles were removed shortly after publication following complaints, and related posts have been censored across Chinese social platforms. A post on lifestyle app Xiaohongshu stated that “a foreign liquor company in Chengdu is laying off a large number of employees,” with some users naming specific departments. The post later became unsearchable.
Diageo’s Chinese Baijiu Arm
Founded in Chengdu, Sichuan, Shui Jing Fang is a well-known baijiu brand. Diageo acquired a controlling stake in the company through four rounds of share purchases between 2006 and 2013.
An industry source, speaking on condition of anonymity, confirmed the reports to local media and said the layoffs involved multiple departments.
“News about layoffs at Shui Jing Fang has already spread throughout the trade,” the source said. “It’s not just a single position, but multiple departments.”
The person added that employees were compensated “according to local Chengdu standards” and said the layoffs were understandable under the current global market conditions.
“As long as the compensation is legal and fair, it’s not unusual,” the source said. “After all, the global alcoholic beverage market is undergoing an adjustment.”
Although the company has not issued a formal response, Shui Jing Fang has undergone a high number of leadership reshuffles over the past decade. Since Diageo took control in 2010, the company has replaced its general manager seven times, including Kenneth M. Acpherson, James Michael Rice, and several other Chinese and international executives, which raised concerns about strategic instability and internal friction.
Speculation Mounts Over Possible Sale
Rumors have also emerged suggesting Diageo may be planning to divest its baijiu operations in China. On May 20, the company unveiled its “Accelerate Programme” during a strategy update in London, outlining plans for cost reductions and asset deleveraging, including the “timely and selective disposal of assets” over the coming years.
During an investor call that evening, Chief Financial Officer Nik Jhangiani said Diageo was considering changes that could go beyond typical portfolio adjustments.
“We see… some opportunities for what I would call substantial changes versus portfolio trimming,” Jhangiani said. “It’s clearly going to be above and beyond the usual smaller brand disposals you’ve seen over the last three years.”
While no direct reference to the Chinese business was made, Jhangiani’s comments sparked speculation among analysts.
Diageo has sold off several smaller, underperforming brands in recent years, including Safari liqueur and Cacique rum. With the China baijiu segment contributing about 3% of Diageo’s global revenue, some analysts have suggested it could be a candidate for divestment.
Shui Jing Fang has denied the reports. Chief Public Affairs Officer Hong Zonghua responded publicly, saying the company remains committed to the Chinese market.
“Diageo has always regarded China as one of its two key strategic global markets,” Hong said. “The management team clearly recognises the importance of Shui Jing Fang’s role in the Chinese market. Executives have repeatedly reaffirmed their long-term confidence in China.”
Despite the internal shakeup, Shui Jing Fang’s recent financial performance has been largely positive. In its 2024 annual report, the company posted revenue of RMB 5.217 billion (approximately US$ 730 million), representing a 5.32% year-on-year increase. Net profit attributable to shareholders reached RMB 1.341 billion (US$ 188 million), up 5.69% from the previous year.
Growth continued into the first quarter of 2025, with revenue rising to RMB 959 million (US$ 134 million), up 2.74% year-on-year. Net profit for the quarter reached RMB 190 million (US$ 26.6 million), a 2.15% increase.
However, the company’s cash flow position has deteriorated sharply. In 2024, net cash flow from operating activities fell 57.11% year-on-year to RMB 744 million (US$ 104 million). In Q1 2025, it plunged further to negative RMB 576 million (US$ -80.6 million), marking the worst quarterly performance since the company went public.
The sharp drop in cash flow has raised concerns about Shui Jing Fang’s cost structure and operational efficiency, especially as China’s broader alcohol market remains in a period of contraction. A sluggish macroeconomic environment and shrinking demand for business and premium consumption have created additional challenges for mid- to high-end liquor brands.
Even Feitian Moutai, once priced near RMB 4,000 (US$ 560) per bottle, has been observed trading in the market for under RMB 2,000 (US$ 280), reflecting weak demand even at the top end of the market.
Strategic Tightrope
In an uncertain environment, industry analysts say a shift in focus from scale expansion to operational sustainability is becoming critical. Conserving cash, cutting redundant spending, and improving internal efficiency may now be higher priorities than topline growth.
For Shui Jing Fang, the real test ahead will be whether its management can strike a balance between preserving brand prestige and improving financial resilience — a balancing act that could define its future in one of the world’s most competitive liquor markets.
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