Same Old Spirits, Smaller Bottles In Africa

Same Old Spirits, Smaller Bottles In Africa

British producer of spirits Diageo hopes to dispel the “perception” that spirits are expensive in Africa by introducing smaller-sized bottles – about a third of the regular size – in sub-Saharan Africa, Bloomberg reports.

In Africa, where most spirits are what the industry calls “unbranded” – meaning “homemade” – Diageo is betting smaller bottles can persuade more drinkers to sample its well-known labels instead of opting for cheaper beer, according to Bloomberg.

Diageo makes Smirnoff vodka, Johnnie Walker whisky, and scores of other liquor brands. Now it’s selling them in 20-centiliter (less than seven ounce) containers – just less than a third the size of a normal bottle of spirits – in sub-Saharan Africa. It’s a cheaper way for friends to share one of Diageo’s global brands instead of choosing a local brand or or a beer, the report said.

“There’s a perception that spirits are expensive in Africa,” said Gerald Mahinda, a managing director at Diageo.

With fast-growing economies and relatively low alcohol consumption – Nigerians drank 0.3 liter of spirits each in 2012 and Ghanaians 2.4 liters, versus 20.9 liters in Russia and 7.4 liters in the U.S., Diageo says – Africa is becoming a major battleground for alcohol producers. Though the scant consumption is largely due to low incomes, consumer spending power is increasing, Mahinda said.

Diageo has introduced 20-centiliter bottles of Johnnie Walker Red, one of the cheapest whiskeys, in three countries. A bottle costing $5.43 in Ghana has six servings, making it about the price of a 33-centiliter bottle of Guinness beer.

Smaller bottles have helped the brand grow an average of 60 percent per year in South Africa since their introduction in 2010, according to Diageo. They appealto aspirational drinkers who want to try something new. In 2012, Diageo started selling the smaller bottles in Ghana and Nigeria.

While beer accounts for about two-thirds of Diageo’s Africa revenue – its Guinness was first exported to Sierra Leone in 1862 – the company lags behind SABMiller Plc and Heineken NV in the region.

In sub-Saharan Africa, by contrast, Diageo is the market leader in sales of branded spirits, according to UBS AG, eclipsing rival Pernod Ricard SA. Diageo had Africa revenue of $2.4 billion in 2012, or 13 percent of the company’s global total and almost seven times Pernod’s sales in the region.

Pernod’s incoming CEO Alexandre Ricard said Africa is a priority and in September told reporters that the region is “like Asia was 15 years ago.” The company made its first major push outside of South Africa in the past two years, and Africa accounts for roughly 3 percent of global sales, according to Pernod.

“Diageo has a clear competitive head start” over Pernod, said Melissa Earlam, an analyst at UBS AG in London. With demand rising fast, though, there’s plenty of opportunity for all players, she said. Sub-Saharan Africa has expanded at an average of more than 5 percent annually since 2010, and Diageo’s sales growth in the region has averaged 13 percent a year since 2004.

Diageo’s shares have increased 11 percent this year.

With its mini bottles, Diageo is taking a page from consumer-goods giant Unilever, which has long sold small sachets of shampoos and soaps in Asia for just pennies apiece, according to Martin Deboo, an analyst at Investec Plc.

“It’s about educating the consumer – clearly most Africans aren’t going to go straight for 700-milliliter bottles of Johnnie Walker Blue” – a variant that can top $200 per liter, Deboo said. “It’s not just about price – it’s a sampling strategy.”

The company is working with owners of mainstream bars such as licensed shebeens – pubs in South Africa’s townships – to attract lower-income drinkers who haven’t traditionally consumed its brands. Diageo salespeople tour such taverns urging bartenders to serve shots of its spirits.

To woo drinkers of moonshine and local brands, Diageo has created cheaper labels for Africa. Its Jebel gin, Smirnoff 1818 vodka, and Richot brandy, for instance, typically cost less than $10 for a standard 700-ml bottle. Such brands offer better margins than beer, Diageo says, and are almost as profitable as big international spirits like Johnnie Walker or Baileys.

Diageo plans what it calls a “ladder” of brands at different prices to cater to consumers who may seek a shot of Johnnie Walker after they get their paycheck, but choose a Jebel in tighter times. Africans, Mahinda says, are keen to adopt new products.

“Ten to 15 years ago, there was disbelief about what mobile phones would do to Africa,” he said. “Now people can’t keep up. I think people will be shocked in the next four to five years.”