Bloomberg News

Diageo Sees Innovation Driving High-Priced Spirits Sales Growth

October 24, 2012

Diageo Plc (DGE), the world’s biggest distiller, said it can continue to win market share with its high-end spirits brands as it creates more variants of drinks, including Ciroc vodka.

Diageo, which has increased its share of so-called super- deluxe spirits to 15 percent last year from 10 percent three years ago, will continue to increase sales in that category, Rudy Paoli, managing director of its Reserve Brands unit, said today in a telephone interview from Singapore. Diageo cited market-share data from London-based International Wine & Spirit Research.

“My ambition is to always be a growth engine at Diageo,” Paoli said, adding that he’s confident Reserve Brands can continue to expand sales at a pace similar to the 27 percent organic growth of last year. Super-deluxe brands retail at $40 or above.

The Reserve Brands unit, which sells high-end spirits including Ron Zacapa rum, grew in every region last year, including a 10 percent sales increase in Europe, he said. There was a “strong double-digit” increase in the first quarter of this year in China. The sales figures were on an organic basis, excluding the effects of acquisitions and currency fluctuations.

Heritage Brands

Consumers in China are moving from “ostentatious luxury” to brands with “heritage,” he said. The London-based distiller opened its Johnnie Walker House in Shanghai last year selling $2,000 bottles of whisky.

Diageo now gets more than 1 billion pounds ($1.6 billion) a year in revenue from the Reserve Brands unit, Laetitia Delaye, an analyst at Kepler Capital Markets, wrote today in a note. That represents about 9 percent of total sales.

“We think growth can be driven by further brand internationalization and distribution expansion, further innovation and favorable demographics,” including a growing middle class in emerging markets, she said.

As well as creating more expensive variants of its spirits, including a Johnnie Walker whisky blend called Odyssey, which sells at about $1,000 a bottle, Diageo is catering to consumers seeking so-called affordable luxury, and has created Johnnie Walker Gold Reserve whisky at $50 a bottle and Platinum at $80, alongside new variants of Ciroc vodka.

“In difficult times, people will economize in some categories and trade up in some,” Paoli said. “It’s a movement to affordable luxury, and we’re well-positioned in that.”

Diageo doesn’t anticipate adding brands from recent purchases to its luxury portfolio, such as Turkish raki maker Mey Icki, Paoli said.

To contact the reporter on this story: Clementine Fletcher in London cfletcher5@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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