Diageo splashes out to tap whisky boom

Wed Jun 6, 2012 7:14am EDT
 
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By David Jones

LONDON (Reuters) - Diageo Plc (DGE.L: Quote), the largest producer of Scotch whisky, is to invest over 1 billion pounds ($1.5 billion) in the drink over the next five years to meet growing demand from the emerging markets of Asia, Latin America and Africa.

Rivals are also expanding, with the world's second-biggest Scotch producer Pernod Ricard (PERP.PA: Quote) unveiling a 40 million pound investment last week at its malt distilleries to boost supplies of its top sellers like Ballantine's and Chivas Regal.

Diageo, which makes Johnnie Walker, J&B and Bells whisky and has around a third of the market, said it is seeing strong growth in BRIC markets - Brazil, Russia, India and China - and beyond, as drinkers worldwide acquire a taste for the Scottish tipple.

"We are looking beyond the BRIC countries and while not as large as the BRICs there are huge opportunities in countries like Colombia, Vietnam and Indonesia which are large markets with emerging middle classes," Chief Executive Paul Walsh said on Wednesday.

The British company plans to build a new malt distillery, expand a number of existing ones, develop plans for a second new distillery and a possible third if the 10 percent plus annual sales growth of recent years is sustained for the next three or four.

"If Scotch delivers as forecast, Diageo will enter a new era of above-trend growth," Redburn analyst Chris Pitcher said.

Diageo's Scotch whisky sales have risen 50 percent over the last five years to nearly 3 billion pounds last year, creating a third of group profit. In the last half of 2011 the Scotch market saw volumes grow 8 percent and sales some 14 percent.

SET TO EXPAND   Continued...

 
A signage is seen on the outside of Diageo offices in west London October 10, 2008. REUTERS/Toby Melville