Raging Scotch thirst ‘from Boston to Beijing’ drives Diageo spend

By Ben Bouckley

- Last updated on GMT

Related tags Net sales Scotch whisky Distillation

Raging Scotch thirst ‘from Boston to Beijing’ drives Diageo spend
Diageo has announced ‘pivotal’ plans to invest one billion pounds in a new malt distillery and expand existing sites in Scotland to cash in on explosive growth in emerging markets from Europe to Asia.

The upgrades will take place over the next five years: the distiller is also drawing-up plans for a second new distillery if strong demand continues: Diageo said its Scotch brands had seen 50% net sales growth over the past five years.

Asked where the new distillery would be built, a Diageo spokeswoman told BeverageDaily.com: “That’s the million dollar question! But probably near existing facilities on Speyside [Scotch whisky centre Strathspey] or in The Highlands.”

She was unable to confirm the new site’s capacity, but said it would probably be similar to the Roseisle facility that Diageo opened in October 2010: the first malt distillery of scale built in Scotland for 30 years.

No construction timeline had yet been finalised for the new distillery, the spokeswoman said – “we are still in the planning stage” –​  and Diageo had no date by which it would decide whether to build  the second site.

Clear growth headroom

Key Scotch growth markets for Diageo name check the usual BRIC and ASEAN suspects – China, Russia, Brazil, India, Vietnam and Thailand – but also Mexico, Colombia and Venezuela, South Africa, Poland, Romania and Turkey.

“There is clear headroom for growth in emerging markets: Scotch consumption in Brazil is just four servings per capita compared to 44 servings per capita in a mature market like France,”​  Diageo said.

“We are still seeing opportunities to grow in developed markets,” ​the firm added. “In the first half of the financial year 2012, our two key Scotch brands in North America – Johnnie Walker and Buchanan’s – both grew net sales and volume by double digit, while we continue to see opportunity for share gains in Western Europe.”

As part of the ₤1bn plan (€1.2bn) ₤500m for construction, the balance as working capital -- new warehousing  will also house the extra Scotch resulting from the distillation upgrade, which requires maturation.

Paul Walsh, Diageo CEO, said: “This is a pivotal moment in the development of the Scotch whisky category for Diageo. Over recent years our brands have achieved remarkable, sustained global growth.

Consumer resonance

“Scotch whisky is Scotland’s most celebrated manufactured export, led by brands like Johnnie Walker, resonating with consumers from Boston to Beijing,”​ he added.

The investment plans announced today would create 250 construction jobs for each of the five investment years, Diageo said, while it predicted that around 500 further jobs could be created within the wider economy.

Scotch represented 23% of Diageo’s volume sales and 27% of net sales in the year ending June 30 2011, and a third of its gross profit in 2011 financial year.

Diageo Scotch sales rose 8% by volume and 14% in terms of net sales in the first half (H1) of 2012 to approach ₤3bn due to increased demand in high growth markets.

In H1 2012, a focus in Asia on Scotch and luxury brands fuelled 13% net sales growth for Johnnie Walker, while Buchanan’s grew net sales 26%; in Russia and Eastern Europe Johnnie Walker net sales were up 22%, White Horse 15%.

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