Diageo sells whisky business to Bayside-led consortium for $194 mn

Diageo Korea Co., London-headquartered multinational beverage alcohol company Diageo plc’s Korean affiliate and the biggest whisky importer in Korea, is in talks with a Korean consortium to sell its whisky business. The deal will be around 230 billion won ($193.7 million), according to investment banking sources on Dec. 26.

The consortium is led by two Korean equity firms, Bayside Private Equity and Metis Investment. Once the deal is completed, Bayside will hold the rights of manufacturing, sales and business operation of the whiskies.

Diageo Korea’s main products are blended whiskies such as Windsor, which boasts the biggest 35% share of the Korean whisky market, and Johnnie Walker, the world’s No. 1 Scotch whisky. After selling off its whisky business, the Korean beverage company will retain businesses of Chinese baijiu Shuijingfang and Irish dry stout Guinness. Sales in blended whiskies in Korea have declined due to increasing consumption of alcohol at home and more consumption in high-quality alcohol, such as single malt whiskies, industry watchers said.

Diageo Korea has positioned itself as the No. 1 whisky company in Korea through the 1990s and the early 2000s. At the time, its average sales per year were 400 billion to 500 billion won. However, the company has suffered financial difficulties since 2016 as beverage sales through bars declined due to the national implementation of a maximum 52-hour workweek and the Kim Young-ran Act, an anti-graft law. The pandemic also impacted the whisky business.

Changes in the alcohol consumption trends in Korea have also affected the whisky business. Due to restrictions on dining out amid the pandemic, alcohol consumers, especially the younger generation drinking at home, have started enjoying pricey single malt whiskies. The proportion of single malt whisky in the Korean whisky market rose from 3% to 10% during COVID-19.

Diageo Korea’s sales from July 2010 to June 2011 were 404.5 billion won. It halved last year, recording 193.2 billion won. The operating profits dropped from 105 billion to 37 billion won in the same period.

The Korean beverage company has executed corporate restructurings three times since 2009 and is still receiving applications of voluntary resignation from its employees. Last year, the firm stopped the operation of a factory manufacturing Smirnoff vodka for exports and Windsor for the Korean army.

The split-off of its whisky division will accelerate business withdrawals and restructuring in the Korean whisky market, which has been in a downturn for the past 10 years, market watchers said. Edrington, a Glasgow-headquartered spirits company selling single malt Macallan, closed its Korean affiliate last year due to sluggish sales. Pernod Ricard, a French beverage company well known for blended Scotch whisky Ballantine's, is reportedly discussing withdrawal from the Korean market.

Write to Chae-Yeon Kim at why29@hankyung.com