Following the comings and goings at Rémy Martin the downturn in China continues to take its toll, as evidenced by the first half-year results unveiled by both Diageo and Pernod Ricard. Diageo reported that net sales of its luxury Baiju brand Shui Jing Fang “declined significantly” and that Johnnie Walker Black Label sales also “declined”. But that said, “super and ultra-premium Scotch performed strongly, while Baileys maintained its momentum with a 37% net sales growth”.

Interesting juxtaposition there – that is, putting the cream liqueur Baileys in the same sentence as its super-and ultra-premium Scotch whiskies. But hey ho, the world’s number one multinational must be thanking its luck stars – for once – that it doesn’t have a Cognac in its portfolio. Rival Pernod Ricard does, of course, and Cognac Martell led an overall 18% sales decline in China.

However, Diageo does have a 34% share in the fortunes of Moët Hennessy and since 2009 rumours have surfaced occasionally that Diageo would bid for the outstanding 66% of the Champagne-to-Scotch whisky-to-Cognac combo. LVMH chief Bernard Arnault to date has remained unmoved and is clearly reluctant to sell off its “cash cow”.

So how has Hennessy fared in China? According to its annual report for the year ending December 2013, Hennessy did not have too rough a ride: “The brand’s firm historic foothold and momentum in the nightlife segment offset the impact of government measures affecting receptions and business gifts” – we’ll see if the same applies for 2014. But the signs are none too good.

China was, of course, highlighted in the first acronym for emerging markets – BRIC – along with Brazil, Russia and India. The BRIC economies were first cited in a Goldman Sachs report back in the early noughties and have since been followed by the CIVETS – Colombia, Indonesia, Vietnam, Egypt, Thailand and South Africa and now the MINT countries of Malaysia, Indonesia (again), Nigeria and Turkey.

Emerging economies make happy reading for drinks companies all looking for markets boasting burgeoning youthful middle classes with a good amount of disposable income. All fine and dandy on paper – but no account is taken of political uncertainty and religion. China’s admirable progress and extremely rich pickings for companies able to afford the cost of entry has been all but halted by the political decision to clean up the government act – ergo end of entertaining and backhanders in which imported drinks brands played centre stage.

South American countries are notorious when it comes to political machinations, thanks in the main to the horrendous divide that exists in many of them between the rich and the poor. Witness the unrest in Brazil due to the huge amount being lavished on football stadia for the 2014 FIFA World Cup. And this will only get worse methinks as government funds are stretched to the limit when the country plays host to the 2016 Olympics.

Political upheaval and religious aspects have come to the fore in Egypt, upsetting the status quo and economic growth. Then there is Turkey. No sooner had Diageo lashed out more than $2 billion in 2011 to buy the country’s leading raki producer, Mey Icki, than the Turkish government enacts a law forbidding alcohol advertising and restricting the times and places where alcohol can be sold. Oh dear.

It just goes to show how risky the strategy of focusing on emerging markets with their rising middle classes can be, but Diageo has been at the fore when it comes to investing in these “emergent countries”. A year after its Turkish acquisition it turned its attentions to Brazil and acquired the premium cachaça producer Ypioca for a cool $453 million and shortly after that got the green light to acquire the now “significantly” declining Chinese baiju Shui Jing Fang. Last year of course saw its acquisition of a majority stake in India’s top spirits company, United Spirits, for $2.04bn.

However all is not well in India, which pre-2013 was challenging China as the emerging market powerhouse. To quote one observer it had a “wretched 2013, with rampant inflation, a rising current account deficit and a run on the rupee”. One could be forgiven for thinking not to go where Diageo goes. But the drinks industry loves to fantasise about the potential this market has, particularly for imported spirits and particularly if they had a level playing field. Currently alcohol imports attract a 150% levy and that’s before tariffs are added in the individual states – in short a free trade agreement seems a long way off.

So where to go next? Looking at the emerging market acronyms South Africa and Nigeria, currently attracting significant investment, are clearly in the running. This could mean the next generation of tiger economies will be in Africa. In Middle Africa, Angola is the most promising drinks market with large expat communities of Portuguese, Brazilian, and Chinese communities alongside affluent Angolians. But I urge caution or should I say Colombia, Argentina, Uruguay, Thailand, Indonesia, Oman, Nigeria?

ollowing the comings and goings at Rémy Martin the downturn in China continues to take its toll, as evidenced by the first half-year results unveiled by both Diageo and Pernod Ricard. Diageo reported that net sales of its luxury Baiju brand Shui Jing Fang “declined significantly” and that Johnnie Walker Black Label sales also “declined”. But that said, “super and ultra-premium Scotch performed strongly, while Baileys maintained its momentum with a 37% net sales growth”.

Interesting juxtaposition there – that is, putting the cream liqueur Baileys in the same sentence as its super-and ultra-premium Scotch whiskies. But hey ho, the world’s number one multinational must be thanking its luck stars – for once – that it doesn’t have a Cognac in its portfolio. Rival Pernod Ricard does, of course, and Cognac Martell led an overall 18% sales decline in China.

However, Diageo does have a 34% share in the fortunes of Moët Hennessy and since 2009 rumours have surfaced occasionally that Diageo would bid for the outstanding 66% of the Champagne-to-Scotch whisky-to-Cognac combo. LVMH chief Bernard Arnault to date has remained unmoved and is clearly reluctant to sell off its “cash cow”.

So how has Hennessy fared in China? According to its annual report for the year ending December 2013, Hennessy did not have too rough a ride: “The brand’s firm historic foothold and momentum in the nightlife segment offset the impact of government measures affecting receptions and business gifts” – we’ll see if the same applies for 2014. But the signs are none too good.

China was, of course, highlighted in the first acronym for emerging markets – BRIC – along with Brazil, Russia and India. The BRIC economies were first cited in a Goldman Sachs report back in the early noughties and have since been followed by the CIVETS – Colombia, Indonesia, Vietnam, Egypt, Thailand and South Africa and now the MINT countries of Malaysia, Indonesia (again), Nigeria and Turkey.

Emerging economies make happy reading for drinks companies all looking for markets boasting burgeoning youthful middle classes with a good amount of disposable income. All fine and dandy on paper – but no account is taken of political uncertainty and religion. China’s admirable progress and extremely rich pickings for companies able to afford the cost of entry has been all but halted by the political decision to clean up the government act – ergo end of entertaining and backhanders in which imported drinks brands played centre stage.

South American countries are notorious when it comes to political machinations, thanks in the main to the horrendous divide that exists in many of them between the rich and the poor. Witness the unrest in Brazil due to the huge amount being lavished on football stadia for the 2014 FIFA World Cup. And this will only get worse methinks as government funds are stretched to the limit when the country plays host to the 2016 Olympics.

Political upheaval and religious aspects have come to the fore in Egypt, upsetting the status quo and economic growth. Then there is Turkey. No sooner had Diageo lashed out more than $2 billion in 2011 to buy the country’s leading raki producer, Mey Icki, than the Turkish government enacts a law forbidding alcohol advertising and restricting the times and places where alcohol can be sold. Oh dear.

It just goes to show how risky the strategy of focusing on emerging markets with their rising middle classes can be, but Diageo has been at the fore when it comes to investing in these “emergent countries”. A year after its Turkish acquisition it turned its attentions to Brazil and acquired the premium cachaça producer Ypioca for a cool $453 million and shortly after that got the green light to acquire the now “significantly” declining Chinese baiju Shui Jing Fang. Last year of course saw its acquisition of a majority stake in India’s top spirits company, United Spirits, for $2.04bn.

However all is not well in India, which pre-2013 was challenging China as the emerging market powerhouse. To quote one observer it had a “wretched 2013, with rampant inflation, a rising current account deficit and a run on the rupee”. One could be forgiven for thinking not to go where Diageo goes. But the drinks industry loves to fantasise about the potential this market has, particularly for imported spirits and particularly if they had a level playing field. Currently alcohol imports attract a 150% levy and that’s before tariffs are added in the individual states – in short a free trade agreement seems a long way off.

So where to go next? Looking at the emerging market acronyms South Africa and Nigeria, currently attracting significant investment, are clearly in the running. This could mean the next generation of tiger economies will be in Africa. In Middle Africa, Angola is the most promising drinks market with large expat communities of Portuguese, Brazilian, and Chinese communities alongside affluent Angolians. But I urge caution or should I say Colombia, Argentina, Uruguay, Thailand, Indonesia, Oman, Nigeria?