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Scotch is key to success, Menezes tells Diageo investors

Published:  17 November, 2015

Diageo is looking to its reserve brands, and in particular scotch, to lift growth, according to chief executive Ivan Menezes.

The reserve brand segment has "been a jewel within Diageo", Menezes told an investor conference in New York last week.

"It used to be less than 5% of our business. It's 13% to 14% now, growing fastest, highest margin," he said.

Within reserve, it is scotch that is key to Diageo's prospects.

"A lot of this is scotch," Menezes said. "We're doing some amazing stuff now, selling really rare malts. We've got customers paying millions of dollars right now, right? And we're just early in that game."

Scotch is Diageo's largest and most profitable category, he revealed.

The group sells over 33 million cases of scotch which generates around £2.5 billion of net sales. That is equivalent to about a third of Diageo's profit.

Diageo recently commissioned a global survey of bartenders in nine cities, which revealed scotch to be the only category with global appeal in the on-trade.

Diageo has forecast that 1 billion more consumers will earn over $5k a year over the next 10 years. Nearly three quarters of that increase will come from China and India.

On the basis of those figures, Diageo believes the number of consumers able to afford its international spirits will increase by 90%.

And even in developed markets, Menezes said, penetration of luxury spirits is low.

The US is the most developed market in the world and no more than 7% of its serves are in luxury.

Diageo is well-positioned to change that, Menezes believes.

"We have a strong operating model. We build our reserve brands by seeding them in the most influential accounts and building their reputation with the bartenders and consumers who set trends.

"Once a brand has reached a sufficient level of fame we then distribute it to a wider range of premium accounts and our profitability accelerates

"We have tried, tested and refined this model over the last five years, and now have a strong network of relationships in many of the most important accounts.

"This means we secure the most prominent exposure for our brands where and when it counts.

"In fiscal year 2013, our reserve teams were reaching 18,500 of these influential accounts globally. Last year that number increased to 31,000 accounts and we are on course to reach 50,000 accounts by 2017."

Diageo is also the outperforming the market in single malts. David Gates, head of premium core spirits at Diageo, said.

The category is up 6.9% over the last three years, while at Diageo it is up 11.1% volume and 17.1% by value.

The investor conference was the first in two years for the global group.

Nearly 60% of its senior leadership team has changed in that time.

Diageo needs to persuade the market of its continued potential after a series of sluggish figures.