Diageo Shrinking Johnnie Walker to Grow in Latin America

Diageo Sees Expanding Latin America While Europe Cools
Employees pass under the Diageo Plc logo and the brand logos for Johnnie Walker and J&B whiskies at the company's Shieldhall factory in Glasgow, Scotland. Photographer: Mike Wilkinson/Bloomberg

Diageo Plc, the world’s biggest distiller, expects products including new varieties of Johnnie Walker whisky to drive sales growth in Latin America as it targets emerging middle-class consumers and women.

The maker of Smirnoff vodka will continue to see “double-digit” growth in the region after reporting gains of 19 percent in organic net sales and 22 percent in operating profit last year, Randy Millian, the president of Diageo’s Latin America and Caribbean unit, said in an interview in Miami. He declined to be more specific.

Diageo, which sells products including Johnnie Walker Red Scotch whisky in countries from Brazil to Costa Rica, is relying on emerging-markets growth to offset stagnant markets in Europe. While the Latin America and Caribbean region represented 12 percent of sales and 11 percent of operating profit last year, Diageo wants Brazil to become one of its top three markets by 2017, alongside the U.S. and U.K. Millian said he’s confident of the distiller’s prospects in the country even as the pace of economic growth slows in emerging markets.

“From a macro-economic point of view, yes, it probably has slowed down,” the executive said. Still, for Diageo “we won’t see much of a slowdown” in Brazil and the rest of the region.

Millian said spirits “are relative underdogs” compared with beer in the region, where alcohol sales are dominated by brewers Anheuser-Busch InBev NV and SABMiller Plc.

Diageo’s main focus in South America is “continued leadership” in Scotch, as well as improving its sales of vodka, rum and the recently purchased cachaca brand, Ypioca.

Jose Cuervo

The London-based distiller agreed to buy Ypioca in May for 900 million reais ($453 million). The acquisition of the Brazilian spirit expanded Diageo’s distribution in the country to 250,000 outlets and “gives us a brand we can take internationally with the right message,” Millian said.

Diageo is also interested in Jose Cuervo tequila and has hired banks to explore the possibility of gaining control from the Beckmann family, people familiar with the plans said in April. The company, which distributes the brand outside Mexico, hasn’t come to a deal yet with the Beckmanns, Millian said.

“I would hate to lose Cuervo, but to do a deal that doesn’t make sense to our shareholders wouldn’t make sense,” he said. If the company fails to conclude talks before Diageo’s distribution agreement for the brand ends next year, “we have plan Bs, but we don’t want to get further into that,” he said.

Wider Range

Diageo will look at “anything if the right opportunity comes along,” Millian said. It doesn’t need to team up with any of the brewers across Latin America to improve its route to market, he said, even though it did assess an acquisition of Schincariol Participacoes e Representacoes. The Brazilian brewer was bought by Kirin Holdings Co. in November 2011 in a deal that valued it at $3.62 billion.

“We took a look and decided to go with Ypioca,” he said.

Diageo is expanding the range of drinks it sells across the Latin America and Caribbean region, primarily through creating new varieties of existing brands, such as different flavored variants of Gordon’s vodka, as well as selling brands such as Johnnie Walker in smaller pack sizes to enable consumers with less disposable income to experience the drinks. It’s also created products including Nuvo that will appeal to women.

Scotch whisky will continue to be the main driver of growth across the region, even as vodka sales rose 19 percent last year, driven by Smirnoff and Ciroc, Millian said.

“Is vodka going to have the transformational effect it did in North America? I don’t think so,” he said. Demand is still strong for clear spirits “if you have the right brands.”

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