Plenty of Growth in Emerging Markets: Diageo CEO
Spirits-maker Diageo has not seen any dip in profits from its Chinese business and says it’s enthusiastic about a new breed of consumer that is emerging globally.
“There is an emerging middle class on a global basis, there may be unevenness in the trajectory but it is inevitable that they will have the economic wherewithal to access our brands,” CEO Paul Walsh told CNBC Thursday.
The firm, who produces premium drinks, such as Johnnie Walker whisky and Smirnoff Vodka, reported earnings on Thursday. In the year to June, the company grew sales, excluding acquisitions, by 6 percent.
Walsh’s comments come as HSBC released a survey showing China’s slowdown was worsening, with an index of factory activity falling to the lowest level the country has seen for nine months.
Walsh conceded that Diageo was quite thinly spread in China and currently only appealed to the most affluent consumers, but he said, that offered the firm opportunities in the future.
“That’s going to offer huge growth potential for this business and given that our development is scotch-led, this is fabulous news for exports for the U.K.,” he said.
Diageo’s emerging markets business, which makes up almost 40 percent of its sales, saw a 15 percent rise in the year till June. Operating profits in Asia, Africa and South America rose 18 percent, 20 percent, and 22 percent respectively.
In the beer industry, the top companies have spent the past decade using mergers and acquisitions to increase their emerging markets presence. So much so, that drinks analyst Spiros Malandrakis told CNBC on Wednesdaythat it may have reached a saturation point.
In contrast, Diageo say they haven’t yet explored their true potential in these markets.
“We’ve not done a lot of (mergers and acquisitions) in the last decade. It’s only in the last couple of years where we’ve stepped up our action particularly in the emerging markets,“ Walsh said, citing organic growth as the real value creation for their company.
Walsh was cool when quizzed on recent news that Diageo were keen to purchase tequila brand Jose Cuervo from Mexico’s wealthy Beckmann family. According to reports, talks are ongoing in a deal expected to be worth around $3 billion.
“I’ve made it very clear that on the right terms we would like to deepen our relationship with the Beckmann family and as you would expect that dialogue is ongoing,” he said.