Interview

"Half of our beer around the world isn't creamy with a white head" - Interview, Diageo's global head of beer, Mark Sandys, part II

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Much as the markets of Europe and the US tend to dominate the brewing headlines, Diageo's beer business also operates further afield from these craft playgrounds. In the second- of our two-part interview, Diageo's global head of beer, Mark Sandys, details the importance of Africa, the rise of Guinness in Korea and how the company is tackling new restrictions in Indonesia.

More than half of Diageos beer business is in emerging markets

More than half of Diageo's beer business is in emerging markets

At Diageo's Capital Markets Day in New York last year, Sandys told analysts and media that beer "gives Diageo scale". That's quite a big statement for a company that owns some of the largest global spirits brands in the world. But, with net sales of around US$2.85bn a year, beer accounts for around 20% of the group's total global sales. And, in fiscal-2015, 55% of Diageo's beer sales came from emerging markets - with 48% hailing from Africa.

"Half of our beer around the world isn't creamy with a white head," says Sandys. "It's not served in a pint glass and the people don't celebrate St Patrick's Day." Brand extensions like Guinness Foreign Extra Stout clearly play an important role for Diageo, then, in markets such as Africa and Asia.

And, while he says the craft beer movement "isn't really relevant" to those markets, Sandys is keen to emphasise that innovation is still very much on the agenda. "That same experimentation (among consumers) isn't happening in Africa and Asia," he notes. "But, there is this explosion of demographics and our task is not to be 'my dad's brand'." This is quite a task in Africa, where Guinness has been around since 1827. "Our challenge there is to have energy, dynamism and youthfulness," Sandys says. "That's what Guinness Africa Special [launched last year in Nigeria] is doing for us."

African Opportunity

Guinness Africa Special is now made at Diageo's facilities in Africa but, says Sandys, the initial brew came from Dublin. "We make the pilot here, so that what we're making in Africa, we're matching against the liquid that comes out of here."

Alhough it's currently only available in Nigeria, it will roll out across Africa "eventually", he adds.

The Nigerian market hasn't been without its headaches. In March, Diageo's Africa president, John O'Keeffe, said he was "mindful of the short-term uncertainty" in the country, caused by falling global oil prices.  Although Sandys expects there to be more "bumps in the road" in the country, he sees a silver lining: "Sub-Saharan Africa has got so much growth potential in it over the next few years - purely because of demographics," he says.

"In Africa, consumers drink only 11 litres of beer per year on average – much less than in the mature markets, at the moment." Couple this with increased urbanisation, the switch from illicit home brews to branded beer and the population growth of legal-drinking-age to 30-year-old males, and it's clear why Africa represents such a large opportunity.

Diageo isn't the only global brewer salivating at the favourable circumstances the market has to offer - Africa is a key factor in Anheuser-Busch InBev's play for SABMiller. Could there be some spoils for Diageo in the fall-out from the deal? After all, SABMiller has several tie-ups with privately-owned Castel in Africa and a change of ownership for SAB could prompt Castel to look elsewhere for a new partner.

"We're already a partner with Castel in a lot of Africa," says Sandys. "They brew and distribute Guinness on our behalf in a lot of countries, basically, where we don't have a Diageo business."

Diageo has its "eyes open" for future growth opportunities in the market, Sandys concedes. And, of the AB InBev/SAB deal, he adds: "We'll kind of wait and see what the fall-out there will be."

Elsewhere in Diageo's beer business, the company gave up the Red Stripe brand after it offloaded its 57.87% shareholding in brewer Desnoes & Geddes to Heineken. "For us, it was partly a trade-off in favour of Ghana," he says. "It was part of a bigger deal, which allowed us to focus our brewing operations.

"Now... we distribute Heineken's brands alongside our portfolio but in a fully-owned Diageo business," says Sandys.

Asian Challenge

Over in Asia, innovation is also a key growth driver - consider, for example, last year's launch of alcohol-free Guinness in Indonesia - an extension born out of neccesity, when the country introduced a ban on beer sales in the convenience channel a year ago. "There was already an established market around Bintang Zero, which is the Heineken local beer there," says Sandys. "[Guinness Zero] is going much better than we thought it was going to. It's a really interesting area of adult soft drinks - basically, a situation where you don't want to drink alcohol but you don't want to look like a kid." He confirms Guinness Zero is taking share from carbonated soft drinks in the country and, moreover, beacuse it's available in convenience stores, "it's not stealing shelf space from any beer".

Six months ago, Heineken's CFO suggested that the existing ban could be reviewed by Indonesia's authorities. At the moment, though, Sandys says he is "not banking on" the ban being lifted any time soon. Guinness Zero will remain, even if the restrictions are reversed. "We're also looking at other variants and different flavours that we can bring out in that area as well," adds Sandys.

Diageo has used the beer ban to deepen its relationship with the country's convenience channel. "We brought in tables and chairs (for the stores), facilities to show the football," says Sandys. "For a lot of those outlets, the ban was a real threat to their business."

Further north, Sandys is excited about Korea, "We've got this amazing, thriving Guinness business there," he boasts. "More women than men drink Guinness in Korea." Diageo supplies this fledgling Guinness market out of Ireland. But, "Korea is on such a growth trajectory that if it continued that way over the next five years, then it would get to such a scale that we would have to look at doing something more local". he says.

The Guinness brewery in Dublin is Diageo's beer business in microcosm. On the one hand, it spans a vast area, attracting tourists from all over the world. Meanwhile, on the other hand, it's got a small, buzzing innovation facility, hell-bent on producing beers that help Guinness remain relevant to ever-more sophisticated consumers.

Sandys - and, indeed, Diageo - will hope this 'something for everyone' approach continues to brew success for years to come.

For part one of this interview, click here


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