Top 10 drinks stories of 2011(10)
9. Diageo storms emerging markets
Never one to sit back and watch market developments unfold before it, Diageo this year made significant progress in its efforts to increase its share of developing markets in Asia and elsewhere.
Back in June, Diageo finally gained regulatory approval in China to acquire an additional 4% stake in Sichuan Chengdu Quanxing Group (Quanxing), taking its total holding in the company to a controlling 53%.
The £13 million deal gave Diageo indirect control of leading Baijiu brand Shui Jing Fang, in which Quanxing holds a 39.7% stake. The £25 billion Baijiu market currently accounts for more than 30% of the booming Chinese alcoholic drinks sector.
The deal was hugely significant in that it marked the first time a foreign company has gained control of an important Chinese brand.
In August, the world’s biggest drinks company announced it had received regulatory clearance for the £1.3 billion acquisition of Mey Içki, the leading spirits company in Turkey.
The company originally announced its intention to acquire Mey Içki in February this year as it sought to strengthen its position in the fast-growing Turkish spirits market.
Mey Içki’s key brand Yeni Raki accounts for around 67% of the group’s total revenues, while it also has a presence in the vodka, wine, gin and liqueur markets.
It is the company’s strength in the Turkish raki market which convinced Diageo to make its move, with the drink being by far the most popular spirit in Turkey, accounting for 80% of total spirits consumption in the country.
Diageo will commence global distribution of the Yeni Raki brand from January.
Elsewhere, Diageo successfully closed a public offer to acquire an additional 5.07% stake in Hanoi Liquor Joint Stock Company (Halico) in Vietnam for approximately £6.4 million. The public offer opened on 21 July and closed on 19 August.
A Diageo statement said: “Diageo’s public offer to increase its equity stake in Halico further demonstrates Diageo’s commitment to working with Halico as its strategic partner in the rapidly growing Vietnamese branded spirits sector.
Gilbert Ghostine, president of Diageo Asia Pacific, added: “Diageo is confident that, by partnering with Halico, we both can successfully leverage Vietnamese consumers’ growing demand for branded spirits such as Vodka Hanoi.”
Speaking at the company’s annual results conference in August, Diageo chief executive Paul Walsh said: “Emerging markets are the growth engine of the business.”
Today they provide 60% of the group’s profits and in four years time they will be the source of half of all its sales, he predicted.
Building on the “existing strong platform” to generate expansion in faster-growing markets combined with “sharper focus” on costs will “maximise cash and returns” and “underpin faster dividend growth”, he said.
During the year, Diageo spent £1.6 billion on mergers and acquisitions, which also involved taking controlling stakes in Serengeti Breweries in Tanzania and Zacapa premium rum.
Such acquisitions give access to burgeoning local populations and at the same time provide enhanced routes to market for Diageo’s existing portfolio.
It’s a strategy that will doubtless continue throughout 2012.
