Discussing the drinks giant's results for the six months to December 31 2011,Paul Walsh, CEO, said that emerging market net sales grew 18% (operating profits up 23%) and now accounted for 40% of turnover; Scotch was the standout performer with 14% net sales growth.
Globally, Johnnie Walker grew 15%, Smirnoff returned to growth, Guinness grew 5%, while the company’s reserve brand portfolio (including Johnnie Walker Blue, Don Julio, Ciroc) grew 25%.
In a later investor call with analysts, Diageo management responded to December media reports that US rapper P.Diddy (a.k.a. Puff Daddy, Diddy, or Sean Jean Combs), was keen to set up his own tequila company, given his penchant for tequila and Mexico as a country.
Combs has a profit-share agreement with Diageo in regard to the Ciroc brand, which is marketed as the “world’s most sophisticated vodka”, and has seen sales rocket since his involvement from 2008.
Jamie Isenwater from Deutsche Bank, asked Diageo management: “On Ciroc and Mr. Diddy. There were some press reports that he was going to launch a tequila, and I presume that that wasn’t in conjunction with Diageo. I wondered whether there were any contractual obligations around him starting competitive products, or whether that was even true?”
Diageo will 'protect' P.Diddy's interests
Diageo’s North American president, Ivan Menezes, told the analyst: “As you know there is a lot of speculation and stuff written about our partner, so I wouldn’t believe everything you read.
“But you can be sure that – in the way we have structured our relationship with Mr Combs, we have obviously thought about the long term, how we best protect Diageo’s interests, and indeed his.
“So without disclosing anything about our contract, I can assure you that we feel comfortable about our future with Mr Combs.”
Glossing stellar growth for Scotch, particularly in China, Gilbert Ghostine, Diageo’s president, Asia Pacific, told Antoine Belge from HSBC: “Scotch is growing and cognac is growing. If you look at Scotch, total Scotch is growing at 3%, but most importantly, super deluxe Scotch is growing at 12%.
“This is where we see the biggest opportunity for Scotch in the future. That’s where we’re channelling the bulk of our energy, to fuel and to keep driving this trend. And this is where we are winning big time.”
Chinese Scotch success
Earlier, Ghostine had told Belge: “Johnnie Walker Blue Label in the first half has had a stunning performance in China, growing higher than 50% that has been consistent.
“Over the past six quarters, our super deluxe Scotch business in China has grown at over 40%. So this trend on super deluxe is still growing strong and we gaining market share."
And Walsh himself told Melissa Earlam from UBS: “You’re going to see us continue to build our inventories in Scotch. I’ve mentioned several times the favourable demographics in emerging markets, and the lucrative prospects for Scotch.
“We’re going to have to make sure that we lay down liquid to serve those consumers.”