Diageo is a world-leading alcoholic beverage manufacturer, producing brands such as Johnnie Walker, Smirnoff, Baileys and Guinness. In Africa, its largest businesses are in Nigeria, and in East Africa, where it owns 50.03 per cent of East African Breweries Limited. In this interview, John O’Keefe, Diageo Africa’s president, discusses his company’s prospects in the continent.
How is Diageo positioned to take full advantage of socio-economic growth in sub-Saharan Africa in 2016, and the emergence of a middle-class population?
The opportunity in Africa is enormous and it is driven by a number of factors.
First, demographics. There is some very strong growth, with about 130 million new consumers over the next decade coming into the legal drinking age.
Second, urbanisation. As we see consumers move from a more rural setting to an urbanised setting, we see that consumers tend to enter the formal alcohol market.
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Third, there is very low per capita consumption of alcohol across Africa, one of the lowest in the world.
And, finally, in most markets, as is the case in Kenya, there’s a very large illicit market, and as consumers get wealthier, we anticipate that market moving into the formal market.
So for all of those reasons, Africa is forecast to be the fastest-growing alcohol market in the world over the next five to 10 years.
Diageo is very well placed to access these opportunities. We play in both beer and spirits in all categories, from premium to mainstream to value. Offering both beer and spirits gives us a real competitive advantage.
How is the company coping with the increased demand for raw materials to manufacture products?
One of the big strategic pillars for us is to increase the amount of local raw materials that we use in a country. For instance, in Africa over the last three to four years, we’ve gone from using about 50 per cent locally sourced raw materials to 70 per cent.
Specifically, in this country, 75 per cent of all we require to brew great quality beer is now coming out of Kenya. This is fantastic for a number of reasons.
First, it’s great for the local communities, and we’ve contracts with over 30,000 farmers to grow sorghum that we need for products.
It’s also good for the country in terms of increased tax take, and it is good for overall business in terms of being able to access local raw materials close to our breweries. This is a key part of our supply chain moving forward.
To what extent will innovation contribute to Diageo’s growth in a year that sub-Saharan Africa, according to the World Bank, is expected to experience near-flat growth?
Innovation is one of our competitive advantages at Diageo, and while we can get better, it is one of our core strengths. In any year, globally, we might launch as many as 200 products.
This year alone, I think one of our more successful innovations is Tusker Gold that we just launched in Kenya. We’re very excited about supporting the Olympic team. Kenya Cane coconut flavour is another successful launch we’ve had.
Innovations are really important for us to bring excitement and vibrancy to the category and to bring new offerings to keep consumers interested. It is also important that we innovate in the value end of the segment to encourage consumers to move from the illicit to formal market, which is good for the country as a whole, and for ourselves as well.
How will Diageo’s route-to-consumer strategy help expand Africa’s untapped potential?
Our route-to-consumer plan is an important facet of our strategy, and we make sure we call at more distribution outlets more frequently and that we set really good standards.
We’ve been making some really strong inroads in Kenya on that, and more broadly, we’ve invested over $1 billion (Sh100 billion) the last five years expanding our footprint across Africa.
We shall continue investing with our partners and our customers to make sure that the end-offering for the consumer is one of the best in the world.