DRINKS giant Diageo is leading the race into emerging markets ahead of French rival Pernod Ricard, and looks set to be first to get half its sales from these growth areas as it serves drinkers from Moscow to Mumbai, analysts have forecast.
Diageo, Scotland’s largest whisky distiller, has been snapping up producers of baijiu, cachaca and raki in China, Brazil and Turkey respectively to drive sales in the world’s fastest-growing economies, they say. Pernod, however, is seen as hamstrung by massive debts taken on four years ago to buy Absolut vodka.
Diageo’s next goal is a firmer grip on the world’s biggest tequila producer, Jose Cuervo, with which it has a distribution agreement. Taking a stake in the firm would provide Diageo with important access to the emerging Mexican spirits market and a stronger offering there to go with its Johnnie Walker whisky and Smirnoff vodka brands.
The rivals each make around 40 per cent of their sales in emerging markets. Analysts expect Diageo to be first to hit the 50 per cent mark boosted by recent deals, while Pernod admits it is some time away from joining the serious acquisition trail.
Diageo chief executive Paul Walsh says he is seeing faster growth in emerging markets than his rivals, driven by buoyant Scotch whisky sales, and expects to meet his target to get half group sales from these fast-growing markets by 2015.
“We are absolutely on track. I will be personally disappointed if we do not get there earlier,” he said, stressing growth was coming from a wide range of emerging markets, giving him confidence that this performance was set to continue.
Diageo’s sales grew in the last half of 2011 by 8 per cent while those in emerging markets were up 18 per cent. They are set to be boosted further as the group bought Turkey’s Mey Icki brand for £1.3 billion and a stake in China’s Sichuan Shuijingfang last year, plus one in Brazil’s Ypioca earlier this year.
“Diageo is in an aggressive acquisition mode as it sees the growth to be had from these local brands and we would expect it to get to the 50 per cent level before Pernod,” said one investment banker.
Pernod chief executive Pierre Pringuet has ruled out big acquisitions over the next year as the company cuts debts after buying Absolut owner Vin & Sprit in 2008 for €5.7bn (£4.6bn), but said he expected to hit the 50 per cent mark in two to three years.
Analyst Chris Pitcher, at broker Redburn, said Diageo was entering a new era of sustained growth helped by its global leadership of the fast-growing Scotch market and expects half of Scotch industry sales this year to come from emerging markets.
Scotch is the world’s biggest international spirits category and business is booming, especially in Brazil, Russia, India and China, where drinking whisky has become a status symbol among the growing middle classes. Both Diageo and Pernod are investing in Scotland to meet the expected strong demand.
News of the analysts’ comments came as Scotland on Sunday revealed Walsh is interested in participating in any merger and acquisition activity in the whisky market that may result from the growing thirst for Scotch in emerging markets.