
05 Nov 2013 Diageo’s small bottles hook into African spirit
The maker of Smirnoff vodka, Johnnie Walker whisky, and scores of other liquor brands, has introduced 200ml containers – a bit less than a third of the size of a normal bottle of spirits – in sub-Saharan Africa. The approach provides a cheaper way for friends to share one of its 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 low alcohol consumption – last year Nigerians drank 0.3l of spirits each and Ghanaians 2.4l, versus 20.9l in Russia and 7.4l in the US, Diageo says – Africa is becoming a major battleground for alcohol producers. Though the scant intake was largely due to low incomes, consumer spending power was increasing, he said.
Diageo has introduced 200ml bottles of Johnnie Walker Red, one of the cheapest variants of the whisky, in three countries. A bottle costing 12 cedis (R54) in Ghana has six servings, making it roughly equivalent in price to Guinness beer, which costs about 2.10 cedis for a 330ml bottle.
The smaller bottles have helped the brand grow an average of 60 percent a year in South Africa since their introduction in 2010, according to Diageo. 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 and Heineken in the region.
In sub-Saharan African sales of branded spirits, by contrast, the company is the market leader, according to UBS, eclipsing rival Pernod Ricard. Diageo had African revenue of £1.5 billion (R24bn) last year, or 13 percent of its global total and almost seven times Pernod’s sales in the region.
“Diageo has a competitive headstart” over Pernod, said Melissa Earlam, an analyst at UBS in London. With demand rising, there was plenty of opportunity for all players, she said. Sub-Saharan Africa’s economy has expanded at 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 1 percent to £19.995 as of 8.35am in London yesterday, giving it a market valuation of £50.19bn. 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 pennies apiece, according to Martin Deboo, an analyst at Investec. “It’s about educating the consumer. Clearly, most Africans aren’t going to go straight for 750ml bottles of Johnnie Walker Blue” – a variant that can top $200 (R2 000) a litre, he said. “It’s not just about price – it’s a sampling strategy.”
The company is working with owners of shebeens in South Africa’s townships to attract lower-income drinkers. 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 700ml bottle. Such brands offer better margins than beer, it 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 paycheque but choose a Jebel in tighter times.
Africans, Mahinda said, were 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 cellphones would do to Africa. Now people can’t keep up. People will be shocked in the next four to five years.”
Source: Bloomberg