• Monday, May 20, 2024
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Diageo looks to spirits to boost Africa growth on premium demand

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Diageo plc, the world’s largest distiller, 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, based in London, is in the process of registering a distribution company to strengthen the business in Angola, said Ekwunife Okoli, 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,” Okoli said in a September 23 interview in Ghana. “The middle income consumers and above like quality brands and consume spirits.”

Africa’s alcoholic-drinks market is forecast to grow by 56 percent to $61.2 billion in 2018, from $39.3 billion 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 urbanization that will demand branded consumer goods, Shea said.

Sub-Saharan Africa’s gross domestic product (GDP) is forecast to expand 5.5 percent next year from 4.9 percent 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.

Diageo is using the infrastructure it has from beer to help develop the distribution of spirits in Cameroon, Ethiopia and Ghana, where it already makes its signature Guinness stout, 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 plc 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 plc, a unit of Diageo, said September 8 that full-year profit after tax fell 19 percent 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 CEO Ivan Menezes said in a January 30 earnings call, acknowledging that the company made an error.

Guinness Nigeria’s shares have fallen 19 percent in Lagos trading this year, while the Ghanaian unit is down 50 percent in Accra.