Diageo Plans to Invest $158 Million to Grow Its `Footprint' Across Africa

Diageo Plc, the maker of Guinness stout and Smirnoff vodka, said it will invest 100 million pounds ($158 million) to expand in Africa in 2011 as the region’s growth helps compensate for slowing sales in Europe and the U.S.

“There’s no doubt Africa is becoming a bigger footprint in Diageo going forward,” David Gosnell, president of global supply and procurement, said in an interview in London yesterday. Diageo is present in seven African countries and will expand into “new areas,” he said, without being specific.

Africa was among the liquor maker’s fastest growing regions in the last financial year, with net sales growing 10 percent, excluding acquisitions. The continent represents 13 percent of Diageo’s total annual revenue, Gosnell said, and consumes about 50 percent of its beer production. The maker of Johnnie Walker whiskey is cutting costs and shutting facilities in Europe and the U.S. as growth slows in developed markets.

The acquisition of a majority stake in Tanzania’s Serengeti Breweries Ltd. by the company’s Kenyan unit, East African Breweries Ltd., will allow further expansion across eastern Africa, Gosnell said. The transaction was completed today.

Kenya and Nigeria will be the subject of the greatest increase in spending, according to Gosnell. “I see Nigeria being a big investment,” the executive said. Harp beer is “a great success” in the country, while Smirnoff Ice is showing “good growth” there, he said.

Harp, Tusker

Beer was Diageo’s fastest-growing category in fiscal 2010, driven by local brands in Africa including Harp and Tusker, named after the elephant that killed one of its founders.

The company has started selling spirits in the region and sales of whiskey are showing “healthy growth,” Gosnell said.

“It helps people to have a beer option, a ready-to-drink option and a spirits option,” Gosnell said, adding that most drinkers aspire to buy more expensive brands.

Outside of Africa, Diageo is “more likely” to expand in China through a joint venture, and will look to countries including Vietnam for growth, Gosnell said. He declined to comment on future partnership plans.

Diageo is closing factories in Ireland and Scotland, resulting in about 700 job cuts and may shut more plants “if necessary,” Gosnell said yesterday in a webcast.

“I don’t see that as being the biggest thing” in the cost-cutting process, he said.

To contact the reporter on this story: Clementine Fletcher in London cfletcher5@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.