Major work to be done in Diageo's emerging markets

By Jo Gilbert

Published: 06 June, 2016

Leading drinks producer Diageo has dropped its previous objective of obtaining 50% of its revenues from emerging markets by 2015 due to flagging growth in key emerging markets.

Leading drinks producer Diageo has dropped its previous objective of obtaining 50% of its net sales from emerging markets by 2015 due to flagging growth in key emerging markets.

The acquisition of United Spirits in 2013 means that over half of Diageo's volumes come from emerging markets.

However, an independent report from Euromonitor International has found that the vast majority of its sales derive from mature brands in mature markets.

Diageo is responding in a number of ways, such as focusing on locally-produced brands in Russia.

It has also placed a much greater focus on its high-end brands from its Reserve Brands portfolio in all markets, including the expansion of brands such as Cîroc, as well as the purchase of a number of high-end tequilas.

Jeremy Cunnington, Senior Alcoholic Drinks Analyst at Euromonitor International, said that Diageo should enhance its emerging market investment.

"Diageo should not only acquire in order to build its presence in emerging markets but also enhance its distribution presence as well as marketing spend, through continued investment," he said.

"The company's strong base in key growth markets puts it in a strong position to do so."

In 2015-2016, Diageo divested a number of non-core brands and products, most notably all of its wine portfolio, but also its Jamaican beer brewer Desnoes & Geddes to focus on its core portfolio.

Despite seeing its global volumes as well as share stagnate in 2015, Diageo comfortably remained the world's leading spirits player.

Cunnington explained: "[Holding onto its top position] is thanks to Diageo's acquisition of UB Group's spirits operations, United Spirits, which almost doubled its volume share of global spirits to 10% in 2013. This made it the undisputed leading distiller by volume in the world, having for years fought it out with both Pernod and United Spirits."

In 2015-2016, the company moved out of wine with the divestment of all its brands to focus on its core business of spirits, beer in Africa and Guinness.

Historically a premium brand, Diageo has changed its focus slightly, and following the acquisition of Mey Içki, Ypióca and United Spirits, the company has been more willing to look at lower-value spirits as a route to market in its bid for greater emerging market presence.

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