China based Swellfun, the subsidiary of Diageo, has terminated its CNY2.3bn ($370m) Chinese liquor brand industrial park project owing to the recent anti-graft campaign in the country.
As cited in Guangzhou's Time Weekly, the project was expected to come up in the Chengdu province.
Diageo acquired the struggling Swellfun liquor brand based in Sichuan in 2013. Swellfun was already in the red that time, with 78% decline in sales during 2013-2014, and deficits of CNY154m ($24.83m) and CNY418m ($67.4m), respectively.
Swellfun was looking to construct a distillery with annual capacity of 28,000 tons and a storage facility with 100,000-ton capacity in Qianglai.
Diageo's troubles in the country did not end even after acquiring a local brand. It is still witnessing a major plunge in sales in China, which it attributes to the Chinese government's ongoing anti-graft campaign and frugality drive.
But as reported in Want ChinaTimes, inside sources also attribute Diageo's losses to the company's misguided policies such as focus on the production of Western brands in contrast to Swellfun's expertise in indigenous liquors; its refusal to subsidize sales channels to help them slash rising inventory cost; and growing consumer awareness.
Yuan Yiwei spokesman said the company is taking all possible steps to stem the tide and has stepped up efforts to grow e-commerce sales, medium market penetration, and cost controls.
Meanwhile, Diageo CEO Ivan Menezes remains hopeful about the Chinese market, citing its huge GDP, emerging middle class, and growing urbanization as positive factors.
He is also betting big on other emerging markets like India and Southeast Asia, which will account for 25% of the group's global sales in 2020.