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Business News/ Companies / Diageo targets more Africa growth with spirits ahead of beer
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Diageo targets more Africa growth with spirits ahead of beer

Diageo is relying on spirits such as Johnnie Walker whisky and Smirnoff vodka to drive expansion in Africa

The market in Nigeria, the continent’s most populous nation, will probably more than double over the same period. Photo: Bloomberg  Premium
The market in Nigeria, the continent’s most populous nation, will probably more than double over the same period. Photo: Bloomberg  

Accra: Diageo Plc., the world’s largest distiller, 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.

“Diageo, based in London, is in the process of registering a distribution company to strengthen the business in Angola," said Ekwunife Okoli, managing director for Africa Regional Markets.

“It’s opened a Gilbeys gin factory in Mozambique and plans to begin bottling Smirnoff Ice in the southeast African country to exploit economic growth," he said.

“We’ve been able to reach out to our consumer segment in these markets," Okoli said in a 23 September interview in Accra, Ghana’s capital. “The middle income and above consumers like quality brands and consume spirits."

“Africa’s alcoholic-drinks market is forecast to grow by 56% to $61.2 billion in 2018 from $39.3 billion last year," Bloomberg Intelligence analyst Kenneth Shea said in a 7 July note.

The market in Nigeria, the continent’s most populous nation, will probably more than double over the same period.

“Growth will be driven by a large, young population and increasing urbanization that will demand branded consumer goods," Shea said.

Sub-Saharan Africa’s gross domestic product (GDP) is forecast to expand 5.5% next year from 4.9% in 2013, 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.

Spirits market

“Angola, Africa’s second-biggest oil producer, is the continent’s second-biggest spirits market after South Africa," Okoli said, 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 is using the infrastructure it has from 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 isn’t planning significant further investment in beer due to increased competition from companies such as SABMiller Plc. 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.

Stocks decline

Guinness Nigeria Plc, a unit of Diageo, said on 8 September that full-year profit after tax fell 19% as drinkers switched to cheaper brands to offset rising fuel costs. An October increase in beer prices in Africa’s biggest oil producer “was not the right thing to do in this environment," Diageo chief executive officer Ivan Menezes said in a 30 January earnings call, acknowledging that the company made an error.

Guinness Nigeria’s shares have fallen 19% in Lagos trading this year, while the Ghanaian unit is down 50% in Accra.

Diageo shares were 0.7% lower as of 9:49 am. in London, extending the decline for the year to 12%.

“Coal and natural gas exploration in Mozambique is generating investment in infrastructure and putting more money in peoples’ pockets," Okoli said. The IMF forecasts GDP growth in the coastal country of 8.3% this year compared with 7.1% in 2013.

“As the monies go down to the common man, people are going to be looking for recreation," Okoli said. “And with recreation, they want to have a drink." Bloomberg

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Published: 29 Sep 2014, 03:52 PM IST
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