In this, the second part of our interview with Gilbert Ghostine, we discuss the Cognac elephant in Diageos room

In this, the second part of our interview with Gilbert Ghostine, we discuss the Cognac elephant in Diageo's room

In the second part of this month's The Wehring Interview with Diageo's Asia Pacific president, Gilbert Ghostine gives us his views on the Cognac elephant in the room, the future for the company's domestic tie-ups in the region, and what the locals think of the UK-based multinational.

Domestic partnerships aside – more of which later – Ghostine is keen to heap praise on Diageo's global tie-up with French drinks unit Moet Hennessy. With a 34% stake in the wine and spirits unit of LVMH, Hennessy marks Diageo's only involvement in Cognac, one of the international success stories in Asia Pacific.

Amidst regular talk – and regular confirmation – that Diageo would be keen to snap up full control of Moet Hennessy, I suggest that Ghostine would be pushing harder than most for Paul Walsh to pay Bernard Arnault a visit. “That Johnnie Walker and Hennessy are served by the same sales force works for me,” he counters. “I'm not looking at it in China as a 34% stake in Hennessy, I'm looking at these brands jointly being serviced by the same sales force.”

And yet, in China, Hennessy lags behind Pernod Ricard's Martell Cognac brand. When I spoke to Pernod's CEO, Pierre Pringuet, he credited Martell's success in part to Pernod's arrival in China ahead of all other initernational players. “I agree,” says Ghostine. “I think it's a fair statement. They were first and they started investing in their brands in China ahead of us by five or ten years. But,” he warns, “I think the journey has just started in both China and Asia Pacific – the game is on. Net revenue for Asia Pacific's total beverage alcohol market today is about GBP78bn (US$123.58bn). In 2015, it'll rise to GBP108bn. International spirits today is only GBP4bn revenue moving to GBP6bn in 2015. The journey has just started.”

Supplementing its leadership in international spirits in Asia Pacific, with 30% market share, Diageo is also on the hunt for inorganic growth via domestic tie-ups in the region. As well as upping its holding in ShuiJingFang this year, the company has also snapped up a 23.6% stake in Hanoi Liquor Joint Stock Co (Halico) in Vietnam. Ghostine describes the country as “a very exciting market”.

“Vietnam has a population of 80m, with a median age of 28,” says Ghostine, noting that the median age in China is 36, in South Korea it's 38. “52% of the population is below 30, with 1.8m consumers coming into legal drinking age (LDA) every year,” he adds. “Also, around 80% of the local spirit in Vietnam is unbranded. This is where Halico is very interesting: It's got some great brands of good quality with which to attract Vietnamese consumers into branded local spirits from unbranded ones. There's is lots of potential growth thanks to this opportunity.”

Gilbert Ghostine, Diageo's president of Asia Pacific

I see a pattern forming here, with Diageo keener than most to get involved in domestic spirits producers in Asia Pacific. “We will be looking at more opportunities to expand our footprint in local spirits in emerging Asia.” Ghostine is reticent, however, to detail which domestic categories tick Diageo's boxes. “We want to make sure we participate in categories where there are strong brands, where the revenue growth of these brands would be accretive to our performance, where the companies are well-managed and where a route-to-market can be offered that will be of benefit to our international brands.”

I push a little harder. “We are looking more at emerging Asia than developed Asia,” he hints, before closing the door. “You don't expect me to comment on specific markets, because we would be putting leads out there that are not appropriate.”

Our time is almost up; Ghostine's post-work baiju constitution is calling. “I enjoy a ShuiJingFang with our venture partner and key customers,” he says. Not before I've asked - as delicately as I can - about the US$16m fine handed down in July by the US Securities and Exchange Commission for failing to stop its Indian, Thai and South Korean subsidiaries from bribing officials. “We have very strong controls in Asia Pacific today,” he says. “These incidents happened a long time ago. It is unfortunate, but this is now behind us. I am comfortable now that, with the controls we have in place, we are operating at the highest international standards of controls and compliance.”

One final question I'd like to put to Ghostine, before he finishes his day and I start mine, is the perception customers in the emerging markets of Asia Pacific have for the vast multinational giant that is Diageo. As the company makes its mark in the region, is it viewed with any suspicion? “We believe in alliances and partnerships,” he says. “The partnerships we have in this region give us a lot of credibility, putting us in a strong position to engage with companies - and with governments - in discussions. Not only do these partnerships gives us routes-to-market and production capabilities, but they also give us deep local insights and distribution expertise – they have the local market know-how.

“From our side,” he explains, “we offer them world-class consumer marketing capabilities and the best range of alcohol brands in the world. These partnerships have been built on respect, mutual benefit and meaningful equity participation. So, it's a long-term journey that we are committed to with our partners.”

The role Asia Pacific is set to play in Diageo's future – like any multinational drinks company – cannot be overstated. The emerging markets of the region will shape the next 20 to 30 years for the firm. “Our CEO, Paul Walsh, is clear,” concludes Ghostine. “In three to four years' time, he expects emerging markets to represent 50% of Diageo. I can see us more than doubling our business in Asia Pacific between now and 2015, when I can see the region representing 20% of Diageo.”

He who helms the company's operations in Asia Pacific will play a key role for Diageo in the years to come.

To read the first part of this interview, click here.