Diageo Targets New Rich in Emerging MarketsClementine Fletcher
Diageo Plc, the world’s biggest distiller, said it plans to target a growing group of middle-class and wealthy consumers in emerging markets from India to Brazil even as growth in those economies slows.
The London-based maker of Smirnoff vodka and Johnnie Walker whisky has invested about 3 billion pounds ($4.84 billion) in the last three to four years to buy assets from China to Turkey to help boost its presence abroad, Ivan Menezes, chief executive officer, said yesterday at a meeting with journalists after an investor conference.
The acquisitions have given Diageo access to a booming pool of so-called “emerging middle-class” consumers, or those with incomes of more than $6,000 a year, and high-net-worth drinkers who earn more than $30,000 a year, Menezes said. The company is seeking to hone its focus on both groups by introducing them to its brands and convincing them to choose pricier and more profitable tipples to offset investments in capacity and tougher markets in regions like Europe.
“We don’t need people to drink more, we need them to drink better,” Menezes said. He took on the role of CEO in July, succeeding Paul Walsh, who led Diageo for almost 13 years.
Diageo has increased its sales from emerging markets to about 42 percent from 30 percent in 2004, Menezes said, and expects to get more than half its revenue in the coming years from countries outside the U.S. and Europe.
Diageo set a medium-term goal in August 2011 that it would increase organic sales by an average of 6 percent a year and widen its operating margin, a measure of profitability, by 200 basis points over three years. Menezes said yesterday Diageo was committed to its profitability target despite a slowing of growth in some economies.
Menezes said he anticipates an “uncertain” global economy continuing to be a drag on sales growth, echoing sentiments expressed by other consumer goods companies including Unilever.
The company will continue to eye acquisitions in emerging markets, though “we’ve ticked off” some of the most important markets, Menezes said, and he doesn’t expect the same pace of acquisitions in faster-growing economies.
Diageo is also seeking to build positions in tequila and American whiskey in the U.S., and he said that the company didn’t need to buy Beam Inc. to increase its exposure to bourbon.