beyondbrics

With confidence tanking across western economies, it’s no surprise that the world’s biggest consumer-facing industries have been looking elsewhere for growth. And it was more of the same for Diageo on Thursday, as it announced that its strongest sales and profits increases for the last half year came from developing countries.

The maker of Baileys and Guinness saw global sales grow 5 per cent to £6.04bn over the second half of 2012, with operating profits up 11 per cent to £2.05bn. But its fastest growth rates came from Africa and Latin America, as emerging consumers pour back its international spirit and local beer brands.

Sales in Africa rose 10 per cent – albeit from a low base – to £795m; second only to Latin America and the Caribbean, where growth rates hit 18 per cent over the period.

Outside South Africa, east Africa was the continent’s star performer, reporting net sales growth of 11 per cent as its low-price local Senator Keg beer rolled out across the Great Lakes and Tanzania. Kenya, the region’s largest economy and the home of the Senator brand, hopes to become a middle income country by 2030.

The group, which hopes to gain half of its profits from emerging markets by 2015, has been on the acquisition trail across developing countries to counter slowing growth at home.

Africa has been a growing focus as Diageo looks to harness the continent’s famous 300m-strong emerging consumer class and bring illegal hooch drinkers into formal markets. And the group has been putting its money where its mouth is.

“We have increased investment behind our core beer brands and international spirits, and we have continued to execute innovation tailored to the emerging middle class,” said Nick Blazquez, president of Diageo Africa. That included the launch of Snapp – an apple flavoured faux cocktail targeted at women in Kenya – which since last year has driven 50 per cent growth in Diageo’s African ‘ready to drink’ category.

But the more significant spirits category was the real outperformer, with sales of Johnnie Walker blended Scotch rising by 38 per cent, and Africa accounting for almost half of Smirnoff’s net sales growth globally.

The world’s biggest drinks group is still battling high input costs across the continent, but operating profits for Africa were up 17 per cent to £225m, over the period. “Price increases across the region offset cost of goods increases and higher overheads,” Blazquez said.

“Africa is still a high risk market, but the breadth of Diageo’s African portfolio gives a huge amount of risk diversification, so it matters less that the macro backdrop in a huge market like Nigeria is challenging,” Jamie Isenwater, an analyst at Deutsche Bank, said.

Those numbers paint a rosy picture in comparison to performance in crisis-stricken Europe, where sales – which make up just under 30 per cent of Diageo’s total – shrank by 2 per cent.

Analysts commented that the results were in line with expectations, although shares in Diageo fell 1 per cent to £18.30 in London on Thursday morning.

Related reading:
Africa: whisky’s new frontier, beyondbrics
African beer: controlled explosion, beyondbrics
Diageo price rises offset Europe weakness, FT