Diageo to establish spirits business in West and Central Africa

by MMC
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Diageo is to create a new wholly owned subsidiary to manage its spirits business in West and Central Africa.

The UK-based group will no longer use listed company Guinness Nigeria to import and distribute its premium spirits, a range of brands that includes Johnnie Walker, Singleton and Baileys.

Guinness Nigeria, in which Diageo has a 58.02% stake, managed the brands under contract sales and distribution agreement this started in 2016. This agreement will now end in April.

About 6% of Guinness Nigeria’s revenue – or 14 billion naira ($18.4 million) – came from imported Diageo spirits products in the financial year ended June 30, 2023.

Just drinks asked Diageo for details on why it decided to create this subsidiary.

Guinness Nigeria will continue to manufacture and distribute locally produced soft drinks, beer, ready-to-drinks and spirits, including Orijin, Captain Morgan Gold, Gordon’s Moringa and Smirnoff X1 Choco.

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By GlobalData

In a stock market announcement yesterday (October 5), Guinness Nigeria said the end of the distribution agreement would help it focus on its core business while accelerating innovation in local spirits products. The move will also mitigate the negative effects of “persistent currency scarcity and exchange rate volatility on the company’s financial performance.”

A number of African countries, including KenyaEgypt, Zimbabwe, Nigeria, Ghana, Tanzania and Zambia have recently faced US dollar liquidity shortages, resulting in a surge in import prices. And, in August, Guinness Nigeria revealed difficulties accessing forex for its operations despite steps taken by the Central Bank of Nigeria in June towards convergence of exchange rates.

While Guinness Nigeria’s net sales increased by 10.9% in the 2023 financial year to N229.4 billion, after-tax profits fell from N15.7 billion in 2022 to a loss of N18.2 billion in 2023. Foreign exchange losses amounted to N49.1 billion.

Meanwhile, in its 2023 annual report, Diageo announced operating profit of £176 million ($215 million) for its African operations, a 44% drop on the previous year ($315 million). pound sterling). Net sales of spirits, however, rose 8%, driven by the growing popularity of Johnnie Walker, while net sales of beer rose 3%.

In the same report, Diageo said: “In Africa, our strategy is to grow our beers and spirits faster. »

David Harris, director of alcoholic beverages research at GlobalData, said: “With this, Diageo will count on a growing trend towards spirits among young African consumers of drinking age, who are increasingly looking for domestic products that appeal to them. , rather than imported products. Western brands.

“Despite the continued popularity of Guinness across Africa, we have seen a steady shift away from traditional, flavorless beer brands by younger consumers. Often viewed unfavorably as “your dad’s beer”, the move is a symbolic shift by Diageo from the old to a new era of targeting young African drinkers with exciting African products.

“Their strategy appears to be focused entirely on Africa, essentially treating their operations in the region as a separate business sequestered from Diageo, while remaining fully owned as a subsidiary. »

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