Global spirits powerhouse Diageo is facing renewed scrutiny in China as reports of mass layoffs at its baijiu subsidiary, Shui Jing Fang, continue to circulate across Chinese social media.
Despite attempts to suppress the story—including the removal of articles and social posts—speculation around job cuts, strategic instability, and a potential divestment continues to intensify.
Two widely read Chinese-language articles—“Mass Layoffs at Shui Jing Fang” and “5% Layoffs at Shui Jing Fang? Another Domino Falls in Baijiu’s Downsizing”—published by WeChat-based platforms “Guojiu Think Tank” and “Daily Sugar and Alcohol Fair” claimed that the entire department for the high-end Di Yi Fang line had been disbanded. These posts were swiftly removed following content complaints, and related posts on Xiaohongshu and other platforms were censored, leading to heightened speculation rather than reassurance.
Mounting Evidence of Layoffs
While Diageo has yet to officially confirm or deny the layoffs, industry sources speaking anonymously to local media have corroborated the reports. One insider stated that the layoffs impacted multiple departments, not just a single product line, with staff receiving compensation “in line with local Chengdu standards.”
“Given current global market conditions,” the source added, “it’s not unusual, as long as the process is legal and fair.” However, the timing and scope of the layoffs suggest deeper structural and strategic issues within Diageo’s China operations.
History of Leadership Instability
Shui Jing Fang, founded in Chengdu, Sichuan, is one of China’s most recognizable baijiu brands. Diageo gradually acquired control between 2006 and 2013, but the post-acquisition period has been marred by frequent leadership changes. Since Diageo’s takeover, the company has seen seven general managers come and go—including both local and international executives. Such turnover has fueled concerns about governance, internal cohesion, and long-term strategy.
Exit Rumors: Is Diageo Planning a Divestment?
The controversy over layoffs comes in the wake of Diageo’s “Accelerate Programme”, a global restructuring plan revealed in May 2025. During the strategy update, the company announced its intent to cut costs and selectively divest non-core assets over the coming years. Though China wasn’t specifically mentioned, comments from CFO Nik Jhangiani indicated the company was considering “substantial changes” beyond small brand divestitures.
Shui Jing Fang represents roughly 3% of Diageo’s global revenue. While not insignificant, this makes it a potential candidate for divestment under a strategy prioritizing portfolio efficiency. Recent examples of similar moves include the disposal of brands like Cacique rum and Safari liqueur.
Official Denial from Diageo
Responding to the growing speculation, Hong Zonghua, Shui Jing Fang’s Chief Public Affairs Officer, reiterated Diageo’s commitment to China:
“Diageo has always regarded China as one of its two key strategic global markets. The management team clearly recognises the importance of Shui Jing Fang’s role in the Chinese market.”
However, the reassurance hasn’t quelled market concerns, particularly in light of the company’s recent financial performance.
Mixed Financial Picture: Growth Amid Declining Cash Flow
Shui Jing Fang’s 2024 annual results were positive at first glance:
- Revenue: RMB 5.217 billion (USD 730 million), +5.32% YoY
- Net profit: RMB 1.341 billion (USD 188 million), +5.69% YoY
The first quarter of 2025 continued this trend modestly:
- Revenue: RMB 959 million (USD 134 million), +2.74%
- Net profit: RMB 190 million (USD 26.6 million), +2.15%
However, behind these figures lies a more troubling trend. The net cash flow from operating activities plummeted:
- 2024: down 57.11% YoY to RMB 744 million (USD 104 million)
- Q1 2025: plunged to negative RMB 576 million (USD -80.6 million) — the worst quarter since going public
These figures have cast doubt on the company’s operational efficiency, especially as China’s liquor market undergoes a major correction. High-end consumption has stalled, and even Feitian Moutai, a symbol of baijiu prestige, is now selling for less than half its peak market price.
Industry Challenges and Strategic Dilemmas
As China’s economy continues to cool and premium consumption declines, the baijiu sector is shifting from rapid expansion to operational consolidation. Analysts believe that Shui Jing Fang’s challenge now is to balance brand prestige with financial discipline.
Cost-cutting and staff reductions may be necessary for survival, but damage to brand perception, morale, and trust among consumers and employees could carry long-term consequences.
For Diageo, the question is whether China’s baijiu market still aligns with its global growth priorities—or whether it’s time to cut losses and refocus on more profitable, scalable markets.
Conclusion: A Pivotal Moment for Diageo in China
The unfolding situation at Shui Jing Fang captures the broader stress fractures in China’s alcohol industry: slowing growth, rising costs, and strategic uncertainty. For Diageo, navigating this environment will require clear communication, decisive strategy, and possibly tough decisions about the future of its investment in China.
Whether the layoffs mark a necessary realignment or the beginning of an exit strategy, one thing is clear: the next few quarters will be pivotal in determining Shui Jing Fang’s—and Diageo’s—trajectory in the Chinese market.
Source: Vino-Joy