Business World

Thursday 19 October 2017

Spirits to overtake Guinness in Diageo's African drinks drive

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

Moses Mozart Dzawu

Guinness maker 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.

Diageo is in the process of registering a distribution company to strengthen the business in Angola, said Ekwunife Okoli, its 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," Mr Okoli said in an 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 56pc to $61.2bn (€48bn) in 2018 from $39.3bn last year, Bloomberg Intelligence analyst Kenneth Shea said in a July 7 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 urbanisation that will demand branded consumer goods, Mr Shea said.

Sub-Saharan Africa's gross domestic product is forecast to expand 5.5pc next year from 4.9pc in 2013, according to the International Monetary Fund. Drinks companies are targeting growth in the region as sales are sluggish in European and North American markets.

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 already has from its beer business to help develop the distribution of spirits in Cameroon, Ethiopia and Ghana, where it already makes Guinness stout, Mr 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 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, has reported that full-year profit after tax fell 19pc 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 January 30 earnings call, acknowledging that the company made an error.

Guinness Nigeria's shares are down 19pc in Lagos this year, the Ghana unit is down 50pc in Accra.

In London Diageo shares have declined 12pc this year.

Irish Independent

Also in Business