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Diageo's Latin America & Caribbean president Alberto Gavazzi on primary Scotch, Cachaça's comeback and cocktail culture - Focus

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Late last week, Diageo's Latin America & Caribbean president Alberto Gavazzi hosted a conference call with analysts. Gavazzi offered some insight into the region's burgeoning Scotch market, as well as plans for cachaça and the rise of cocktail culture. Here, just-drinks takes a closer look at some key points from the call. 

Diageos World Class bartender competition final will take place in Mexico City later this year

Diageo's World Class bartender competition final will take place in Mexico City later this year

The Latin America & Caribbean market

  • Beer accounts for more than 80% of total beverage alcohol consumption
  • Per capita consumption of international-style spirits is about half of what is in the US
  • Total beverage alcohol volumes to grow at a CAGR of around 2% over the next few years
  • An additional 7m legal purchasing age consumers each year to 2020
  • Emerging middle class will continue to grow

The 'primary' Scotch whisky segment

While Diageo has a near-70% value share for Scotch in LAC, led by Johnnie Walker, Buchanan's and Old Parr, the company has also been pushing 'primary' brands such as Black & White, White Horse and VAT 69. According to Societe Generale analyst Laurence Whyatt, these brands are a "focus for Diageo", and they retail at "about a 20% discount to Johnnie Walker Red".

Looking more closely at specific market examples, Gavazzi highlights Black & White in Brazil, which has "about doubled" in size to 600,000 cases over the last two years. "Given the recessionary environment," he says, "we have focused on delivering offerings at different price points across Scotch, and this has driven strong performance in primary Scotch in particular."

In Mexico, the firm expects to near 600,000 cases of Black & White by the end of this financial year. Gavazzi says growth is coming from new consumers, not from "direct cannibalisation of other more premium Diageo brands".

Diageo launched Bell's in Mexico in October, 2016. Gavazzi calls the roll-out the "most successful new brand launch in our history in Mexico". He expects Bell's to exceed 40,000 cases by the end of the year.

Cachaça 

Gavazzi says Diageo has plans to "get cachaça back in growth by focusing on innovation" and investing in more premium variants of the group's Ypioca brand. The firm acquired Ypioca in 2012 in a deal worth BRL900m (then-US$453.9m).

Innovation comes in the form of two new flavoured variants - Ypioca Honey & Lime, and Ypioca Fogo Santo (which means holy fire). Meanwhile, Ypioca Ouro, the aged gold variant, is "18% above last year in volume", reaching 1m cases. "It is driving differentiation from the more popular silver variants," Gavazzi says, "and is also helping the brand grow outside of its stronghold home state of Ceará."

Smirnoff X1

Mainstream-positioned Smirnoff X1, which is tailored to local tastes, will continue to roll out across the LAC region, Gavazzi says. The company has recently launched Smirnoff Spicy Tamarind in Mexico, with Gavazzi hailing "early success". He claims the launch appeals to a flavour that is very common in the Mexican palate. In Brazil, Smirnoff X1 comes in the form of RTD cocktails in "bold fruit flavours". The RTD product is also packaged in Tetra Pak, which Diageo describes as "revolutionary" for the segment. "In its first four months on shelf," adds Gavazzi, "it reached nearly 5% value share of vodka in the modern trade. Sell-out is well above target across all channels."

Speaking about the overall concept of Smirnoff X1, the regional president says: "It is something that should be very appealing to local consumers. Every place is going to have its own development for Smirnoff X1."

Cocktail culture

Creating a stronger cocktail culture across the region is also an important focus for Diageo, when it comes to long-term trend shifts towards international premium spirits. The firm has implemented a 'Cocktail Week' initiative, where on-premise accounts sell cocktails at a fixed price for one week. Activations include special menus and events. "Cocktail Week runs twice a year in Mexico, and not only drives incremental sales but, more importantly, also delivers a trial and brand-building opportunity for our portfolio," Gavazzi says. "We have now expanded into other markets in the region."

The company will also host the Diageo Reserve World Class Bartender competition final in Mexico City later this year.

To read the full transcript from the analysts call, click here


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