Diageo taps into continent’s rise

Bottles of Johnnie Walker Black Label whisky pass along the production line at Diageo Plc's Shieldhall factory in Glasgow, Scotland, on Monday, July 11, 2011. Diageo, which makes whiskies including Johnnie Walker and J&B, is working on plans to boost production at its existing distilleries by more than 10 million liters per annum over the next two to three years, it said. Photographer: Mike Wilkinson/Bloomberg

Bottles of Johnnie Walker Black Label whisky pass along the production line at Diageo Plc's Shieldhall factory in Glasgow, Scotland, on Monday, July 11, 2011. Diageo, which makes whiskies including Johnnie Walker and J&B, is working on plans to boost production at its existing distilleries by more than 10 million liters per annum over the next two to three years, it said. Photographer: Mike Wilkinson/Bloomberg

Published Sep 30, 2014

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Moses Mozart Dzawu Accra

DIAGEO is relying on spirits such as Johnnie Walker whisky and Smirnoff vodka to drive expansion in Africa as economic growth boosts incomes and demand climbs for premium drinks.

The world’s largest distiller, based in London, was in the process of registering a distribution company to strengthen the business in Angola, Ekwunife Okoli, the managing director for Africa regional markets, said last week. In addition, it had opened a Gilbey’s gin factory in Mozambique and planned to begin bottling Smirnoff Ice in the country to exploit its economic growth.

“We’ve been able to reach out to our consumer segment in these markets,” Okoli said.

“The middle income and above consumers like quality brands and consume spirits.”

Africa’s alcoholic drinks market was forecast to grow by 56 percent to $61.2 billion (R690bn) in 2018 from $39.3bn last year, Bloomberg Intelligence analyst Kenneth Shea said in July.

The market in Nigeria, the continent’s most populous nation, would probably more than double over the same period. Growth would be driven by a large, young population and increasing urbanisation that would demand branded consumer goods, Shea said.

Sub-Saharan Africa’s combined gross domestic product (GDP) is forecast to expand 5.5 percent next year from 4.9 percent last year, according to the International Monetary Fund (IMF).

Drinks companies are targeting growth in the region as sales are sluggish in European and North American markets.

Okoli said Angola, Africa’s second-biggest oil producer, was the continent’s biggest spirits market after South Africa, declining to give details.

“Johnnie Walker is by far the biggest scotch brand in Angola,” Okoli said. “Today, the alcoholic market is mainly beer. I don’t believe it will continue to be like that in five years’ time.”

Diageo was using the infrastructure it had from delivering beer to help develop the distribution of spirits in Cameroon, Ethiopia and Ghana, where it already makes its signature Guinness stout, Okoli said.

“With the same sales force for beer, we are able to supply our spirits brands,” he said.

The company was not planning significant further investment in beer due to increased competition from firms such as SABMiller and rising costs.

“Beer requires a huge investment in capex and also we need to understand the market properly to see whether we can be competitive,” he said.

Guinness Nigeria, a unit of Diageo, said earlier this month that full-year profit after tax fell 19 percent as drinkers switched to cheaper brands to offset rising fuel costs.

An increase in beer prices in October last year in Africa’s biggest oil producer “was not the right thing to do in this environment”, Diageo chief executive Ivan Menezes admitted in January, acknowledging that the company had erred.

Guinness Nigeria’s shares have fallen 19 percent in Lagos trading this year, while the Ghanaian unit has slumped 50 percent in Accra. Diageo was 0.7 percent lower by 9.49am in London yesterday, extending this year’s decline to 12 percent.

Okoli said coal and natural gas exploration in Mozambique was generating investment in infrastructure and putting more money in peoples’ pockets.

The IMF forecasts GDP will grow 8.3 percent this year from 7.1 percent last year.

“As the monies go down to the common man, people are going to be looking for recreation. And with recreation, they want to have a drink,” he added. – Bloomberg

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