When Diageo (DEO) entered the African market, it did so with less of a splash and more of a deep penetration. Among its brands is Guinness Export, the most popular beer on the sub-Saharan continent, and Johnny Walker whiskey, which can be found in every bar, even in legally dry countries. But Diageo’s competitors are looking to go head-to-head as they seek to escape shrinking markets in the United States and Europe.
Diageo already competes with Heineken (HINKY) and SABMiller (SBMXY) in beer markets in southern Africa. Pernod Ricard (PDRDY) has announced recently that it wants to follow the world’s largest distiller into the African spirits market despite spirits being less popular there than beer.
Pernod Ricard may have a hard time competing with brands like Johnny Walker, already the most popular in African markets, especially among the elite and diplomatic circles. Diageo recently announced it would invest $15.2 million to expand its Dailuaine distillery complex in Scotland and boost its overall whiskey production by more than 10 million liters annually over the next two to three years.
That sort of investment from the market’s leader may signal that though Pernod Ricard and others may want to play the growing African market as they try to diversify out of their European mainstays, Diageo has every opportunity to show that first movers win.
Diageo also recently invested in the Chinese market to make baijiu, the country’s most popular white spirit. In India it sells Smirnoff vodka. Diageo expects vodka sales in India to grow 12 percent between 2009 and 2015 as India overtakes Germany and the U.K. as the label’s largest market. The company’s overall sales in India are expected to grow by nearly a third in the next three to five years.
The company’s fiscal year ended June 30, with expectations confident for the full-year results on Aug. 25. Its third quarterly statement in late March showed growth, especially in the Nigerian beer market and the overall market in South Africa.
Equities research analysts at Sanford C. Bernstein recently downgraded Diageo to market perform from outperform while Citigroup downgraded it to hold from buy.
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