Diageo leads in race into emerging world

LONDON - Reuters

British drinks giant Diageo is leading the race into emerging markets ahead of French rival Pernod Ricard and looks set to be first to get half its sales from these growth areas as it serves drinkers from Moscow to Mumbai.

While Diageo has been snapping up producers of baijiu, cachaca and raki in China, Brazil and Turkey to drive sales in the world’s fastest growing economies, Pernod is hamstrung by massive debts taken on four years ago to buy Absolut vodka.

Diageo’s next goal is a firmer grip on the world’s biggest tequila producer, Jose Cuervo, which would provide important access to the emerging Mexican spirits market. Both rivals make around 40 percent of their sales in emerging markets and analysts expect Diageo to be first to hit the 50 percent mark boosted by recent deals, while Pernod admits it is some time away from joining the serious acquisition trail. Diageo Chief Executive Paul Walsh says he is seeing faster growth in emerging markets than his rivals driven by buoyant Scotch whisky sales and expects to meet his target to get half group sales from these fast growing markets by 2015.

The London-based group is tapping into the strong growth in local spirits sold for under $10 a bottle which make up 80 percent of the worldwide spirits market. Diageo’s sales grew in the last half of 2011 by 8 percent while those in emerging markets were up 18 percent and set to be boosted further as it bought Turkey’s Mey İçki for 1.3 billion pounds ($2 billion) and a stake in China’s Sichuan Shuijingfang last year, and Brazil’s Ypioca earlier this year.

Pernod’s Chief Executive Pierre Pringuet has ruled out big acquisitions over the next year as the company cuts debts after buying Absolut owner Vin & Sprit in 2008 for 5.7 billion euros.