Diageo’s Greater China Sales Plunge 34.9% as Baijiu Weighs on Performance

Pressure on Diageo’s China business is intensifying.

Results for the 2026 financial year, released on Aug. 6, showed that organic net sales in Greater China fell 34.9% year on year. Sichuan Swellfun, Diageo’s principal baijiu asset in China, is also expected to report a loss for the first half of 2026.

As China’s baijiu market continues its prolonged adjustment, both Diageo China and Swellfun have made senior management changes this year. George Wang became commercial director of Diageo China on June 15, while Swellfun appointed Gan Xiaofeng, formerly general manager of Shandong Jingzhi Baijiu, as its new general manager in June.

The combination of deteriorating performance and leadership changes has intensified scrutiny of how Diageo and Swellfun plan to navigate the downturn in China’s baijiu market.

Diageo reported net sales of US$19.64 billion for the financial year covering July 2025 to June 2026, down 3% from the previous year. Organic net sales declined 2%.

Operating profit fell 27.2% to US$3.16 billion, while organic operating profit before exceptional items rose 2% to US$5.68 billion.

Diageo attributed the sales decline primarily to weakness in its U.S. spirits business and Chinese white spirits division, which adversely affected its overall product mix. Excluding Chinese white spirits, the group’s organic net sales would have increased by approximately 1.5%.

“We are pleased with our progress in LAC, Europe and Africa,” Diageo Chief Executive Dave Lewis said. “We are focused on recovering our competitiveness in NAM and we are working through the consequences of Government policy in Chinese white spirits.”

Performance varied sharply by region. Net sales in Europe increased 5.7% to US$5.10 billion, while Latin America and the Caribbean grew 16.9% to US$2.16 billion. African net sales fell 10.5%, although volumes increased 6.8%.

By contrast, net sales in North America and Asia Pacific declined 6.9% and 2.4%, respectively.

Several Asia-Pacific markets recorded declines, with Greater China reporting the steepest fall. Organic net sales in the market dropped 34.9%.

Diageo attributed much of the decline to weakness in Chinese white spirits. Volumes for the division plunged 41.9% during the financial year. The business reduced Asia-Pacific organic net sales growth by approximately 8 percentage points and group organic net sales growth by about 1.5 percentage points.

Swellfun Forecasts First-Half Loss

Based in Chengdu in southwestern China, Swellfun is one of the country’s best-known publicly listed baijiu producers.

Between 2006 and 2013, Diageo progressively increased its stake in Swellfun’s controlling shareholder, ultimately gaining control and becoming deeply involved in the company’s governance.

The prolonged adjustment in China’s baijiu market has since cast a shadow over both Swellfun and Diageo’s broader China business.

Swellfun’s recent results illustrate the scale of the pressure. The company generated revenue of RMB 3.04 billion (US$423 million) in 2025, down 41.77% year on year. Net profit attributable to shareholders plunged 69.73% to RMB 406 million (US$56.6 million).

In a first-half earnings forecast published in July, Swellfun said it expected to record a net loss attributable to its parent company of RMB 6.22 million (US$867,000) for the first six months of 2026.

Revenue is expected to fall 27.78% to RMB 1.08 billion (US$151 million).

Wu Yonglei, general manager of Xiamen Fond Wine, a major distributor of imported wine, baijiu and international spirits in China, said the baijiu sector is facing shrinking consumption occasions and elevated inventories, placing substantial pressure on sales.

“Sauce-aroma baijiu expanded rapidly several years ago, with brand owners claiming that it would appreciate in value and encouraging consumers to drink one bottle and store another,” Wu said. “That directly resulted in high inventories among both distributors and consumers.”

“In recent years, however, baijiu prices have fallen rather than risen, and retail prices have dropped below distributors’ purchase prices. Combined with weak consumption, these factors have created significant sales pressure for many mid-to-high-end baijiu brands.”

Swellfun’s own disclosures indicate that its decline was caused by more than one factor.

The company said the baijiu industry remained in a period of deep adjustment during the first half of 2026. Swellfun continued to optimise channel inventory, adjusted the pace of shipments in response to changing demand and strengthened inventory management across its distribution network.

Those deliberate inventory reductions lowered first-half revenue by approximately RMB 300 million, the company said.

Swellfun is therefore confronting a combination of structural problems: a prolonged industry downturn, changing drinking occasions, excess channel inventory and pressure on product prices. Its difficulties cannot be attributed solely to changes in government policy, as Diageo’s commentary might suggest.

Diageo China and Swellfun Install New Leadership

Diageo China and Swellfun have both changed senior leaders since the beginning of 2026.

George Wang officially became commercial director of Diageo China on June 15. He succeeded Rita Ren, who became managing director of Perfetti Van Melle China on May 6.

Wang began his career through AB InBev’s global management trainee programme and later worked at Kraft Heinz and Ferrero. His previous positions included key-account channel director and regional sales director.

Swellfun also replaced its top executive. On June 2, the company announced the appointment of Gan Xiaofeng, formerly general manager of regional baijiu producer Shandong Jingzhi, to lead the foreign-controlled listed company.

Gan succeeded Hu Tingzhou, who resigned on May 6 after less than two years as general manager.

The timing of the appointments suggests that the leadership changes may be connected to the deep adjustment underway across China’s alcoholic beverage market. Whether the new executives can turn around the two businesses remains to be seen.

India Sales Rise 7.1%

While Diageo faces mounting pressure in China, its performance in India—another key Asia-Pacific market—was comparatively strong.

Organic net sales in India increased 7.1%, driven by favourable price and product mix and strong Scotch whisky sales. Johnnie Walker and Black & White performed particularly well.

Smirnoff recorded double-digit growth, supported by locally developed flavour innovations, while Don Julio maintained strong momentum and continued to lead India’s emerging tequila category.

However, Diageo also faces regulatory pressure in India.

The group said changes to excise policy in Maharashtra increased the tax burden on some Indian-made foreign liquor products and introduced a new category of state-manufactured alcohol. The measures adversely affected the performance of its mass-market McDowell’s spirits brand.

Maharashtra revised its excise duties on Indian-made foreign liquor in 2025. According to the rates published by the state government, products with a production cost of no more than INR 260 per litre are subject to excise duty equivalent to 450% of production cost or INR 750 per proof litre, whichever is higher.

Products costing more than INR 260 per litre to produce are taxed at 300% of production cost.

In August 2025, the state also introduced a new category known as Maharashtra Made Liquor.

For mass-market Indian-made foreign liquor brands such as McDowell’s, the higher excise duties increase the tax burden and place pressure on retail prices. In a price-sensitive segment, those increases may suppress demand and encourage consumers to switch to cheaper local spirits or other alcohol categories.

The introduction of Maharashtra Made Liquor has further intensified competition from locally produced products. Together, the tax changes and evolving market structure have weighed on McDowell’s sales.

Elsewhere, Diageo’s Asian travel-retail business recorded a 6.3% increase in net sales, which the group attributed to improving channel fundamentals.

North and Southeast Asia nevertheless remained under pressure. Organic net sales declined 5.4% in North Asia and 2.2% in Southeast Asia.