Diageo in Africa – memories of Nairobi.

Moneyweb – www.moneyweb.co.za is the source of this article. One of the best websites around for quality journalism.


I read this and thought back to a week I spent in Nairobi five years ago, for Brandhouse and Diageo. It was fascinating for me, doing a bit of the official thing with sales and trade visits (unusual, because I’m not really on the payroll of any whisky company) and I was far more interested in the whisky culture. I had a wonderful time in Kenya, talking about incredibly good whisky. 


Bernard Gutman

November 2013

Diageo bets on new strategy in Africa.

In Africa, where most spirits are what the industry calls “unbranded” – meaning “homemade” – Diageo Plc is betting smaller bottles can persuade more drinkers to sample its well-known labels instead.

Diageo, the maker of Smirnoff vodka, Johnnie Walker whisky, and scores of other liquor brands, has introduced 20-centiliter containers – a bit less than a third the size of a normal bottle of spirits – in sub-Saharan Africa. The approach provides a cheaper way for friends to share one of Diageo’s global brands instead of choosing a local tipple or a beer.

“There’s a perception that spirits are expensive in Africa,” Gerald Mahinda, a managing director at Diageo, said on the sidelines of an investor conference in London. “This allows people to try them.”

With fast-growing economies and relatively low alcohol consumption – Nigerians last year drank 0.3 liter of spirits each and Ghanaians 2.4 liters, versus 20.9 liters in Russia and 7.4 liters in the U.S., Diageo says – Africa is becoming a major battleground for alcohol producers. Though the scant consumption is largely due to low incomes, consumer spending power is increasing, Mahinda said.

Diageo has introduced 20-cl bottles of Johnnie Walker Red, one of the cheapest variants of the whisky, in three countries. A bottle costing some 12 cedis ($5.43) in Ghana has six servings, making it roughly equivalent in price to Guinness beer, which runs about 2.10 cedis for a 33-cl bottle.

Aspirational drinkers

The smaller bottles have helped the brand grow an average of 60 percent per year in South Africa since their introduction in 2010, according to Diageo, appealing to aspirational drinkers who want to try something new. Last year, the company started selling the bottles in Ghana and Nigeria.

While beer accounts for about two-thirds of Diageo’s Africa revenue — its Guinness was first exported to Sierra Leone in 1862 — the company lags behind SABMiller Plc and Heineken NV in the region.

In sub-Saharan Africa, by contrast, the company is the clear market leader in sales of branded spirits, according to UBS AG, eclipsing rival Pernod Ricard SA. Diageo had Africa revenue of 1.5 billion pounds ($2.4 billion) last year, or 13 percent of the company’s global total and almost seven times Pernod’s sales in the region.

Pernod’s incoming Chief Executive Officer, Alexandre Ricard, has said Africa is a priority and in September told reporters that the region is “like Asia was 15 years ago.” The company made its first major push in the region outside of South Africa in the past two years, and Africa accounts for roughly 3 percent of global sales, according to Pernod.

Sampling strategy

“Diageo has a clear competitive head start” over Pernod, said Melissa Earlam, an analyst at UBS AG in London. With demand rising fast, though, there’s plenty of opportunity for all players, she said. Sub-Saharan Africa has expanded at an average of more than 5 percent annually since 2010, and Diageo’s sales growth in the region has averaged 13 percent a year since 2004.

Diageo’s shares rose 0.9 percent to 1,998 pence as of 11:29 a.m. in London, giving the company a market value of 50.1 billion pounds. Its shares have increased 12 percent this year.

With its mini-bottles, Diageo is taking a page from consumer-goods giant Unilever, which has long sold small sachets of shampoos and soaps in Asia for just pennies apiece, according to Martin Deboo, an analyst at Investec Plc.

“It’s about educating the consumer — clearly most Africans aren’t going to go straight for 700-milliliter bottles of Johnnie Walker Blue” — a variant that can top $200 per liter, Deboo said. “It’s not just about price — it’s a sampling strategy.”

Nigerian Guinness

The company is working with owners of mainstream bars such as licensed shebeens — pubs in South Africa’s townships — to attract lower-income drinkers who haven’t traditionally consumed its brands. Diageo sales people tour such taverns urging bartenders to serve shots of its spirits.

To woo drinkers of moonshine and local brands, Diageo has created cheaper labels for Africa. Its Jebel gin, Smirnoff 1818 vodka, and Richot brandy, for instance, typically cost less than $10 for a standard 700-ml bottle. Such brands offer better margins than beer, Diageo says, and are almost as profitable as big international spirits like Johnnie Walker or Baileys.

Diageo plans what it calls a “ladder” of brands at different prices to cater to consumers who may seek a shot of Johnnie Walker after they get their paycheck, but choose a Jebel in tighter times. Africans, Mahinda says, are keen to adopt new products, as seen in the rapid growth of mobile technology across the continent.

“Ten to 15 years ago, there was disbelief about what mobile phones would do to Africa,” he said. “Now people can’t keep up. I think people will be shocked in the next four to five years.”

©2013 Bloomberg News