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Ivan Menezes, chief executive, Diageo, said: "Over the last few years, the scale and shape of our business in the Asia-Pacific has transformed, primarily by the acquisitions we have made in India and Greater China. These markets are key growth engines, and Gilbert Ghostine will now focus on the development of our position in India and China, a post he orchestrated as he led the expansion of our business in the Asia-Pacific." Ghostine will be president, Diageo India and Greater China, and chief, corporate development, from July 1. He will also be responsible for business development besides overseeing Diageo's relationship with Moët Hennessy and will join Menezes on the Moët Hennessy/Diageo Joint Committee. Ghostine is on the board of United Spirits.
This is the second major appointment Diageo is making for India after announcing Anand Kripalu, former chief executive of Cadbury India, to be the chief executive of United Spirits after Ashok Capoor retires by end-April. Diageo has also overhauled the board to a large extent by nominating three of its senior executives.
This move by Diageo comes when it is raising its game in India to take on global rival Pernod Ricard.
Though there is immense volume sales by United Spirits, Pernod Ricard, due to its premium focus, nets a significant better bottom line despite selling a fraction. Diageo has made a categorical statement that premiumisation of United Spirits brands will be its key focus and will invest heavily behind those brands. Parallely, Diageo is also leveraging USL's well-oiled supply chain network to push its own brands including Johnnie Walker whisky and Smirnoff vodka in India.
As a result of the partnership with the largest spirits company in India, Diageo is aiming to derive about ten per cent of its total business from the country.
While most individual markets account for 3 per cent or less of Diageo's net sales each, the company expects to derive a contribution of 10 per cent from India (along with United Spirits) over a period of time, Diageo’s Chief Executive Ivan Menezes told investors recently. Diageo, the world’s largest distiller based in London, derives the lion share of its revenue from North America that accounts for over 30 per cent of its total sales.
India has managed to grab the spotlight among the growth and revenue share it derives from emerging markets. In the first half of fiscal 2014, the company said it net sales in India grew 35 per cent against an average growth of 1.3 per cent in all emerging markets combined. Diageo attributed the growth to share gains and initial distribution gains from their sales promotion agreement with United Spirits after it began distributing its brands through the 65,000 outlets of United Spirits. Diageo currently has 26.37 per cent stake in the Indian liquor giant.
“The biggest transformation is in India and our investment in United Spirits,” Menezes says. “The strength of United Spirits’ route to market is offering a benchmark to many of our other markets.” According to its India-born chief, Diageo is trying to replicate “the powerful combination” of scale and agility in the operations of United Spirits, earlier controlled by Vijay Mallya, in its other markets as well.
“It is my ambition that all our markets have the capability which United Spirits has - to launch an innovation into 95 per cent of outlets in 5 days,” he explains.
With its reach across 65,000 outlets, or over 90 per cent of the country, United Spirits has an envious distribution network which Diageo has keenly sought. The company aimed to buy out a majority stake, or 53.4 per cent of the company, but settled for 25.02 per cent in July when legal hurdles prevented it from achieving the targeted stake.
However, Diageo was quick to draw up a distribution agreement to leverage the company’s network at the earliest and since October 2013, begun selling its products through the outlets that United Spirits reaches. “We now have our sales promotion agreement in place and it contributed to the very strong growth we delivered in the first half in India. A great start,” says Menezes.
