Diageo Expects African Demand for Consumer Goods to Outpace Asia

Diageo Plc (DGE), the world’s biggest distiller, said Africa will have faster growth in demand for consumer goods than Asia as rising purchasing power fuels the growth of cities and sales of more expensive drinks.

“Most economists would say that now is Africa’s time,” Andy Fennell, Diageo’s chief operating officer for that continent, told journalists yesterday ahead of an investor meeting today in London. “Growth won’t come without its bumps in the road,” but “it’s a particularly exciting place to be.”

Six of the 10 fastest-growing economies globally are in Africa, according to Nick Blazquez, president of Diageo’s business for Africa, Eastern Europe and Turkey. Brewers and distillers are seeking to benefit from economic growth in emerging markets as western Europe stagnates and competition ramps up in the U.S.

Diageo is the largest distiller in Africa, ahead of Paris-based Pernod Ricard SA, with revenue from the region of about 1.5 billion pounds ($2.4 billion) last fiscal year.

The maker of spirits including Smirnoff vodka and Johnnie Walker whisky, as well as Guinness and Tusker beer, said that it has an advantage in Africa as it distributes beer and spirits together to retailers in many countries, while distribution of the two is usually separate. Spirits sales are growing faster than beer, the company said.

New Guinness

Diageo will reissue its Guinness stout brand with new packaging and a marketing campaign across Africa. The Irish brand was first imported to Sierra Leone in 1862, and the new bottle will “improve and enhance the brand in an incremental way.” The company declined to comment on the cost of the rejig or growth prospects, saying only it was a “significant investment.” The brand’s biggest market globally is Nigeria.

The “rate of change” across Africa is faster than in Asia, Blazquez said. However, bad infrastructure and political tension does mean it’s a “glass half-empty and half-full” situation.

Diageo’s spirits growth is aided by demand for Johnnie Walker Scotch whisky, he said, and the company commands 70 percent of Scotch sales in Africa. Net sales have risen at a 13 percent compound annual growth rate and are set to accelerate, the company said, aided by increasing numbers of young consumers with greater amounts of disposable income and urbanization. That typically leads to consumers switching away from illicit alcohol and opting for spirits over beer.

Some consumers goods companies have said that growth in emerging markets is slowing. Unilever, the world’s second-biggest consumer products maker, said Sept. 30 emerging market growth slackened in its third fiscal quarter, sending the shares down the most in almost two years. Despite more difficult operating conditions in some countries, including regulation in some markets that’s “less predictable than I’d like,” Blazquez still anticipates “superior growth” than in other parts of the world.

“The much-trailed African growth story is being recognized now,” Blazquez said. “However, I think it will be inevitably bumpy.”

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

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

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