Major firms like Diageo make local spirits step change
That's accrording to Euromonitor International senior alcoholic drinks analyst, Jeremy Cunnington, who said that Pernod Ricard and Campari were currently well-established in local spirits brands.
“But this marks a major change of strategy for a number of other players such as Diageo, Remy Cointreau and Bacardi,” he said, particularly in regard to Brazil, China and India.
Such moves were being made because emerging markets were key to growth in categories such as blended Scotch and Cognac, the analyst said, with nine out of 10 of the fastest growth markets for blended Scotch whisky (2011-2016) emerging economies.
Previously, leading spirits brands had been reluctant to enter emerging markets with local brands because of a lack of profitability; since margins were higher in percentage terms but lower in dollar terms.
Why bother with local brands?
In Poland in 2011, for instance, a 700ml bottle of Pernod Ricard’s local economy vodka cost around US $13, while a bottle of its Ballantine’s whisky cost $24.
“This would leave Pernod Ricard with around double the profit in actual terms with an international brand compared to a local one. Thus, why bother investing in brands with at least 60% less profit?” Cunnington said.
Thus, firms such as Diageo and Bacardi preferred to focus on core markets in North America and Western Europe – aside from moving profitable international brands in emerging economies, Cunnington said, especially after the Asian financial crash.
But times had changed, and Diageo was now the most active in terms of boosting its local branded spirits presence in emerging markets, he added.
The UK-based giant acquired Mey Icki – Turkish spirits giant – and a majority stake in Chinese baijiu maker Sichuan Quanxing, in the same year.
Diageo on the M&A prowl?
In 2012 it had launched a local Indian whisky brand, Rowson’s Reserve, and bought Brazilian cachaca producer Ypióca.
“It is also rumoured that the company is set to acquire at least large minority stakes in Grupo Cuervo and United Spirits, UB Group's spirits division,” the analyst said.
Meanwhile, Bacardi, had mooted the idea of buying a local whisky brand in India while Rémy Cointreau was considering developing a premium Indian brandy.
Rising disposable incomes were key to the success of spirits in emerging markets, Cunnington explained, where in India, for instance, the number of households with an income of $45,000+ rose from 4.8m in 2006 to 10.8m in 2011.
Euromonitor expects this figure to hit 28.9m by 2016, and that Indian spirits sales volumes will rise accordingly: from 2.2bn to 3.6bn litres over 2011-2016.
Margins aside, by offering affordable products now, major brands could encourage consumers to trade up to international brands as they became more affluent, Cunnington said.
