Diageo and Remy Cointreau hit by China's crackdown on luxury gifts

The crackdown on extravagant gifts in China by President Xi Jinping has claimed its latest victims as Diageo and Remy Cointreau were both forced to swallow tumbles in sales

Diageo, the world’s largest drinks group, reported a “weak quarter in Asia Pacific” in the three months to April, with sales falling 19% amid a downturn at its Chinese white spirit business Shui Jing Hang.

Remy Cointreau, the maker of Remy Martin cognac, was hit even harder and warned of a 40% plunge in annual profits with annual cognac sales down 21%. Remy said sales for the year to March fell by 13.5% to €1.03 billion (£850 million) and confirmed that the reforms in China “had a negative impact on the consumption of premium spirits”.

Businesses selling popular Chinese drinks such as cognac, as well as expensive watch brands, have been hit by the crackdown on luxury gifts, with smaller items being chosen for presents to government officials. Luxury clothing brands have been less affected.

Last week the luxury giant LVMH said sales at its wine and spirits business fall 8% to €888 million for the first quarter due to these issues in China.

The Guinness and Johnnie Walker maker Diageo reported a 1.3% slump in overall third-quarter sales today but said trading was better in North America, Western Europe and Latin America. However, it had to recalculate sales in Venezuela due to the country’s falling currency.

Diageo’s chief executive, Ivan Menezes, said: “The current emerging market weakness does not reduce our confidence in the long-term growth opportunities.”

Diageo is committed to the emerging markets despite the problems for its business and earlier this week it announced plans to take a bigger slice of the Indian whisky maker United Spirits — increasing its stake from 28.8% to nearly 55%.