GrowthSpotting: The Art of Global Investing
This series cuts through market noise to explore a handful of what we believe are the most relevant and inevitable global trends for investors seeking growth.
These powerful subthemes take a closer look at what we think is a valuable framework for understanding growth drivers worldwide—our “MANTRA” (Mass Affluence, New Technology, Restructuring and Aging).
Today’s post focuses on The Finer Things: Bottoms Up!
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Even in times of economic malaise many people crave a little luxury. Alcohol consumption has always been thought to be resistant to economic slowdowns and that seems even truer at the premium end of the market. A fine glass of Scotch whisky, for example, is thought to be one of life’s affordable luxuries.
Diageo, the world’s largest premium spirits company, recently reported mid single-digit sales growth last fiscal year in North America (which also happens to be its largest market).1 But I believe the real opportunity is emerging markets. Rapid urbanization and a growing middle class present a huge potential market. Rising levels of disposable income increase the demand for premium products as consumers seek out not just better quality, but also brands that reflect a higher socio-economic status.
The number of legal drinking age consumers in Asia Pacific alone is increasing by 50 million every year, most of them in China, India and Southeast Asia 2. The company estimates that their opportunity in Asia Pacific is worth roughly $122bn and has been growing at a 6% compound annual growth rate. It already has about a 30% share of that market with a combination of global and national brands2.
This isn’t just about Asia Pacific. Diageo, who has around 27% of the global spirits market, gets close to 40% of its sales from the emerging markets. The U.S. may be the biggest market for its Scotch whisky but it is Latin America that’s the fastest growing one. Exports to Brazil alone were up 44% in 20113. Diageo has around 50% market share in Brazil, with brands like Johnny Walker, and roughly similar positions in Mexico, Venezuela and Columbia, all of which offer high growth potential.
Perhaps more surprising is the thirst for premium brands of beer in emerging markets. Know which country is the largest market for Guinness in the world? It’s the drink of choice in Nigeria—outpacing even Ireland and England in consumption4.
These emerging market consumers have a long way to go to catch up with fellow connoisseurs in the developed world. For example, annual consumption of Scotch whisky in Brazil is four servings per capita, compared to a more mature market like France at 445. Diageo is well-positioned to continue to capture share with its stable of top brands, which in addition to Johnny Walker and Guinness, include Smirnoff, Baileys and Tanqueray, all number one in their respective categories.
- Diageo, PLC, Fiscal year 2012 preliminary results, 8/24/12.
- Diageo, PLC: Our Business, Our Regions, 2012
- Deutsche Bank: More EM than You Think, July 30 2012
- Scotch Whisky Association: Scotch Whisky Exports Break New Records, March 27, 2012
- Diageo Marketing Presentation, May 14 2012
Read more from the series GrowthSpotting: The Art of Global Investing at http://blog.oppenheimerfunds.com/tag/growthspotting/
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