Diageo targets Asian growth

14 July 2011

NEW DELHI: Diageo, the premium spirits group, is ramping up its activity in Asia, where sales levels in markets such as India and China are expected to rise rapidly.

Speaking to the Wall Street Journal, Gilbert Ghostine, Diageo's president for Asia Pacific, stated the company is hoping to become less reliant on regions like North America and Western Europe.

More specifically, the organisation believes Africa, Asia Pacific and Latin America should deliver at least 50% of its turnover between three and five years from now, measured against 33% at present.

"We have a strong presence in these markets," said Ghostine.

According to Ghostine, Diageo's returns from Asia Pacific could double over the period to 2015, indicative of the continent's wider ascension.

"People here are spending more on international spirits, and that should help us grow further," he added.

"We see consumers, with more wealth being created in Asia, aspiring for more international premium brands."

"There is no doubt in anybody's mind that this century will be an Asian century in general and in particular the century of India and China."

"You have 50m consumers coming to legal drinking age in Asia Pacific alone every year, and we expect 20% of Diageo's global revenue to come from this region by 2015."

That total can be compared with the 11.6% of Diageo's returns generated by Asia Pacific in the six months to December 31, 2010, and the 10% yielded over the 12 months to June 2010.

Mark Barnard, Diageo's chief commercial officer for Asia Pacific, also predicted India would witness a surge in high-end vodka sales during 2011.

"Ultra premium vodka is growing at exponential rates in India," he said. "The category will grow at about 35% for the next five years and we plan to grow about 55%, outstripping category growth."

Ghostine similarly forecast Indian sales would rise by 30% per year for the next three to five years, and Diageo plans to tap this trend through enhancing its local reach and portfolio.

"We strongly believe in the potential of the Indian market," he said. "We are expanding our distribution footprint and are also looking at introducing new brands."

Indeed, Diageo is even recalibrating its management structure to maximise the likelihood that emerging nations provide the best possible results.

"These markets are getting to a size that they have real scale now," said Paul Walshe, Diageo's CEO. "Rather than to call on the London office for support, they need to stand on their own feet."

As part of a broader process in this direction, the firm will focus its investment activity on these areas, reflecting changing economic realities.

"I need fewer sales people in Greece, and I need more sales people in Asia and Latin America," said Walshe.

Diageo recently received official approval to take a controlling stake in Chinese company the Sichuan Chengdu Quanxng Group, and Walshe suggested this kind of strategy was attractive, if not without risk.

"In these new markets there are no huge businesses to buy," he said. "But I want to see more of these local deals."

Data sourced from Wall Street Journal, Bloomberg, New York Times; additional content by Warc staff