Company Trend Analysis - Diageo: Mass-Market Whisky Focus In India, Premiumisation Returning In China - OCT 2017
BMI View: Whisky, the most popular spirit category in India, fits well with Diageo ' s drinks portfolio, with the company offering both mainst ream and economy whisky brands, and this is where the company ' s focus will remain. In China, demand for premium brands is returning, but drinks companies will need to target the wealthy youth population rather than government officials.
India is a major strategic growth market for Diageo, particularly since the company purchased a majority stake in United Spirits in 2014, the largest spirits producer in the country. India offers tremendous long-term growth potential, on the back of rising incomes, a huge consumer base and a preference for spirits over beer. We forecast spending (local currency) on alcoholic drinks in India to rise by a compound annual growth rate (CAGR) of 10.7% through to 2021, and over 4% CAGR in volume terms.
The country is, however, very much a high-reward, high-risk market for alcoholic drinks majors, as the chart above shows. Operational risks weigh heavily on margins, as highlighted by the fact that India contributed only 1.5% of Diageo's operating profits in FY17, despite being the company's second largest market by sales and volume. High taxes on alcoholic drinks, poor infrastructure for supply-chains, and regulatory uncertainty pose significant obstacles for companies such as Diageo ( see ' No Major Impact Expected From New Alcoholic Drink Measures ' , April 4 2017).
|High Risks, High Rewards For Alcohol Majors In India|
|Alcoholic Drinks Risk & Reward Scores|
|Note: Scores out of 100, higher score = more attractive market . Source: BMI's Alcoholic Drinks Risk/Reward Index|