The Wehring Interview - Diageo Asia Pacific president, Gilbert Ghostine - Part I
Diageo's Ghostine moved from Europe to Asia at the right time
This month, just-drinks returns to its two-part extended format for The Wehring Interview. Earlier this month, I enjoyed an hour in the company of Diageo's Asia Pacific president, Gilbert Ghostine. I say enjoyed; I wasn't at my best to start.
It's the day after my return from the TFWA World Exhibition in Cannes, an event that always tests my mettle. No more so than at 0800 the following morning, as I put in the call to Gilbert Ghostine, Diageo's president for Asia Pacific. As I engage my voice to say hello, only to discover it's at least one octave higher than it ought to be, Ghostine turns me green with envy. “It's 1500 in the afternoon here in Singapore,” he says, audibly settling back in his chair in a sun-dappled office with a great view (I'll wager). “Everything is perfect.”
He's a lucky man, I tell him, in a (thankfully) lower voice than I greeted him with. When it comes to Ghostine's career trajectory, I couldn't be more on the money. Having moved from his role as MD of Diageo's Continental Europe division in June 2009 to head up the Asia-Pacific business, Ghostine himself concedes that his timing was perfect. “I feel very fortunate,” he says. “I moved out of Europe when growing our business there became more challenging, and moved to Asia just as everyone was getting excited about the region.
“There's no doubt in anybody's mind that this is the Asian century in general, but most particularly India and China. I see lots of potential in the emerging markets, but Diageo also has leadership status in the developed Asian markets like Korea and Australia.”
Since assuming the role, Ghostine has had a lively time of it in the region. On his watch thus far, Diageo has walked away from distribution talks in India with The UB Group, has lined up a controlling stake purchase of Chinese baiju producer ShuiJingFang, has upped its stake in Vietnam's Hanoi Liquor Joint Stock Co (Halico) to 30% and had its wrists slapped by the US Securities and Exchange Commission to the tune of US$16m for making illicit payments in India, Thailand and South Korea.
One at a time, then.
To India: Talk of an exploding middle class and stacks of LDA consumers joining the drinking fold is routine nowadays. So, what has Ghostine got to add to the Indian issue? “India still has a lot of potential for us,” he says, adding that he is “very pleased” with Diageo's current position in the country. “We have completely rebuilt our route-to-market over the last 18 months.”
Gilbert Ghostine, president of Asia Pacific for Diageo
This rebuild has come about as a result of inconclusive talks over a distribution tie-up with Vijay Mallya's UB Group two years ago. Speaking to just-drinks last month, Mallya described the discussions between the two companies as being “on ice”. Ghostine suggests the prospect of returning to the table is not only unlikely but now wholly unnecessary.
“The negotiations with Vijay Mallya are behind us,” he says. “Since then, we have come a long way. We now have access to 43,000 accounts that are stocking our brands. That means we have in-depth access to the distribution channel in India: Today, we have a 100% Diageo-owned company with a 250-strong salesforce and we have 350 dedicated sale people through our exclusive distributors.”
All the while, Diageo's brands are performing well in the country. “The whisk(e)y category is growing at 23%, and Vat 69 posted growth last fiscal year of 57%,” Ghostine notes. “Vodka is growing at 25%, and Smirnoff grew last year by 33%.”
All this must bode well for Diageo's Indian-Made-Foreign-Liquor (IMFL) tie-up with domestic producer Radico Khaitan, then? After just over five years, however, this JV appears to have run its course for Diageo.
“The JV with Radico Khaitan has not been a big success,” says Ghostine. “The JV is in the process of being wound down. This is progressing fast, so it shouldn't take us long to wrap this one up. What has been useful is that it enabled us to understand better the dynamics of the IMFL category, and has helped us to make choices about whether we want to participate in it and at what scale.”
And, will Diageo look for another suitor in the category? “I think we're very well-placed to go it alone in India,” he says. “At the same time, we will keep looking at opportunities to expand our footprint in the country. We'll look for true partnerships, successful brands and brands that could generate growth that is accretive to our performance in India.”
Let's go to China next, where Diageo has taken the seldom-trodden path of going native. Just over four years ago, the company made its first foray into the domestic spirit market in China, through the purchase of a 43% stake in Sichuan Chengdu Quanxing Group Co, which holds 39.5% of the equity in the owner of the ShuiJingFang baiju brand, Sichuan ShuiJingFang Joint Stock Co. Then, last year, Diageo moved to take majority control of Quanxing, a transaction that only got the green light from China's Ministry of Commerce in June this year.
Patience, then, would appear to be one of Ghostine's virtues. “In China,” he says, “one has to work on the framework that the Chinese Government has set, and to their timing. It was very rewarding for us in the end. There is one thing I learnt,” he laughs: “Be patient.”
More broadly in China, is Diageo where Ghostine would like the company?
“We are well-positioned to win bigger in China in the future,” he believes. “We are the only international beverage alcohol company that competes in both international spirits and Chinese white spirits." Ghostine cites data estimating that the total beverage alcohol market in China will be worth around GBP42bn (US$66.04bn) in 2015. "The biggest category," he continues, "is baiju at GBP24bn today, moving to GBP34bn in 2015. It's a substantial category, well-entrenched in local tradition, culture and consumption. We're the only international company that participates in this category in a big scale. So, this is definitely a competitive advantage for us in the future.
“The international spirits category, meanwhile, is a GBP1bn revenue category. This will double over the next five years, but it will still be small compared to baiju. We participate directly here with the likes of Johnnie Walker and Smirnoff, and indirectly with Cognac through our partnership with Moet Hennessy, and we are in Chinese white spirits with ShuiJingFang.”
Part two of this interview, in which we discuss the Vietnamese market and Diageo's partnership with Halico, the Cognac question, the locals' perception of Diageo and whether Ghostine drinks baiju or not, appears here.
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