DELIVERING SUSTAINED GROWTH IN BEER - JOHNO'KEEFFE MARKSANDYS MAY 2019 - Diageo
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DELIVERING SUSTAINED GROWTH IN BEER
JOHN O’KEEFFE MARK SANDYS
MAY 2019
No script
1
Cautionary Statement Regarding Forward-Looking Statements
This document contains forward-looking statements that involve risk and uncertainty. There are a number of factors that could cause actual
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their entirety by the factors described and by the principal risks set out at the end of this document and in the ‘Risk factors’ section on pages
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This document includes the following financial measures which are not presented in our financial statements prepared in accordance with
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2018 Form 20-F. 2
2
DELIVERING SUSTAINED GROWTH IN BEER
JOHN O’KEEFFE MARK SANDYS
MAY 2019
JOK
Good afternoon ladies and gentlemen,
My name is John O’Keeffe, and I’m the President for Diageo Africa.
With me today, is Mark Sandys the Global Head of Beer
3
WHAT WE WILL COVER TODAY
Significant growth opportunity in Beer
Unique Diageo beer model
5 clear growth drivers
Delivering more consistent beer performance
Beer is accelerating our spirits performance in Africa
4
Together , Mark and I will discuss Global Beer, and Diageo’s performance within that.
We believe there is a significant opportunity in Beer
Globally we have a premium beer portfolio, and also a business that is significantly exposed to the fastest growing market
We have a unique, and highly profitable beer model
Guinness , which is at the heart of our beer business is the most iconic beer brand in the world
We are investing to sustain performance
Finally we will touch on how our Beer business also has the added benefit of accelerating our spirits performance in Africa.
Our presentation should last about 35 mins, at the end of which we’ll be happy to take questions
4
WHAT WE WILL COVER TODAY
Significant growth opportunity in Beer
Unique Diageo beer model
5 clear growth drivers
Delivering more consistent beer performance
Beer is accelerating our spirits performance in Africa
5
JOK
Okay, firstly lets understand what’s happening within Beer.
5
GLOBAL BEER CATEGORY IS FORECAST TO ACCELERATE GROWTH,
DRIVEN BY FOUR KEY TRENDS
KEY TRENDS WORLD BEER MARKET GROWTH
3.8% (Volume CAGR%)
3.5%
EMERGING MARKETS
2013-2018
FORECAST 2019-2023
PREMIUMIZATION
2.0%
INNOVATION 1.6%
1.2% 1.2%
FLIGHT TO FLAVOUR
0.3% 0.2%
0.1% 0.1%
-0.3% -0.3%
Africa LAC APAC North Europe World
America
Source: Global Data 6
JOK
Global Beer category has been relatively flat over the past few years , but growth returned in F18
Beer is forecasted to grow faster in coming years, and this in our view, will be driven by four key trends:
• emerging markets (mainly driven by Africa)
• Trading up to more premium options
• An unprecedented rate of innovation
• Flight to Flavour - consumer palate shift from lager to more flavourful beer
Let’s dig a little deeper on each of these.
6
EMERGING MARKETS ARE DRIVING GROWTH,
PARTICULARLY AFRICA
AFRICA LPA+ POPULATION GROWTH PER CAPITA CONSUMPTION IS BELOW OTHER REGIONS
TBA per capita consumption (equivalent serves)
200m
762 788
654
570m 570m 613
466 434 420
Europe NAM Developed Russia LAC Emerging Africa
2018 2030 APAC APAC
INCOME GROWTH BIG ILLICIT/INFORMAL MARKET
CONSUMERS ARE TRADING UP TO MORE PREMIUM
AS WELL AS MORE FLAVOUR, FUELLED BY INNOVATION
PREMIUM BEER IS GROWING RAPIDLY THE RATE OF INNOVATION HAS NEVER BEEN HIGHER
(the greater the flavour the faster the growth)
5,8%
3,3%
-0,6%
-2,2%
Premium Premium Mainstream Discount
speciality
Source : Global Data 8
Growth by Segment 2013-2018
JOK
The second big trend within beer is Premiumization
Consumers are trading up – at a global level moving out of discount and mainstream beer and up to
more premium offerings.
Fastest growing segment of beer is what is classified as Premium Specialty – this includes IPA and
includes Stout.
Although lager remains huge, lager’s share of total beer is falling as consumers explore more hoppy,
more malty, more flavourful beer. This is in part the result of craft – but it’s not just the craft players who
will benefit from this trend - the bigger beer companies that have been able to identify and respond to
this change will also reap rewards.
Inherent in this new phase of the beer category is a high level of experimentation and innovation. For
brands to win, they require a sustainable platform for innovation
8
CONSUMERS ARE MOVING OUT OF MAINSTREAM LAGER
TO MORE FLAVOURFUL BEER
SHIFT IN CONSUMPTION US BEER MARKET TRANSFORMATION
FROM MAINSTREAM BEER 2013-2018
+2.9%
+2.9% +5.9%
+5.9%
31%
41%
30%
21%
-2.0%
Mainstream
Premium
21% 18%
Accessible
Craft & Speciality
11% 15% Sweet & Flavoured
-1.4%
-1.4% +6.3%
+6.3% 6% 6%
2013 2018
Source : Global Data 5 year CAGR to 2018 – among 19 key markets 9
JOK
The 4th and final trend we’re seeing is the ‘Flight to Flavour’.
The net result of all these changes show an accelerating change in the beer landscape in ALL markets,
developed and emerging
Mainstream beer, shown in the middle, using Global Data 5yr CAGR numbers, is under attack in every
market as consumer tastes evolve to more flavour, to premium lager and also to a new segment of
‘sweet and fruity’
This same model is playing out at different rates in different markets. You can see in the US that
mainstream beer has lost 1/4 of its volume in only 5 years – but the drivers are the same everywhere
Critically we use this model to predict how beer markets are going to evolve so that we can future proof
our beer business in the markets
9
THESE GLOBAL TRENDS PLAY DIRECTLY TO THE STRENGTHS OF
DIAGEO’S BEER PORTFOLIO
EXPOSURE TO FASTEST DIFFERENTIATED SUSTAINABLE PLATFORM
PREMIUM PORTFOLIO
GROWING BEER REGIONS & FLAVOURFUL OF INNOVATION
Diageo beer NSV % premium beer
NSV share
67%
Africa
other beer
other emerging markets
premium beer
developed markets
10
Source: Diageo organic results F19 H1
JOK
The four global trends play directly to the our strengths.
1)Half of our beer NSV is delivered by emerging markets – principally Africa. This exposes us to the
fastest growing region in the world, albeit sometimes comes with high volatility
2)In terms of premiumization , in addition to Guinness we have pivoted the portfolio to be more
premium, with the result that 2/3 of our NSV is premium and above.
3) the shift to more differentiated and more flavorful has benefitted Guinness in particular and we have
got better at learning how to use these trends to drive growth.
4) And finally through our investment in the open gate breweries such as you saw last night we are
building an efficient, sustainable innovation model.
Innovation as a % of our total beer sales has risen from only 6% in F14 to now consistently delivering 13%
and growing. Mark will speak more to our innovation agenda later.
10WHAT WE WILL COVER TODAY
Significant growth opportunity in Beer
Unique Diageo beer model
5 clear growth drivers
Delivering more consistent beer performance
Beer is accelerating our spirits performance in Africa
11
MS
Thank you John
Our beer portfolio plays to the trends driving growth in the beer market
And our unique beer model also sets us up for success
11WE HAVE A UNIQUE BEER MODEL THAT ENHANCES
PROFITABILITY
BEER FOCUSED MARKETS PREMIUM IMPORT MODEL
Highly efficient, asset-light brewing model from Dublin
Premium portfolio only, centred on Guinness
IMPORTED BY IMPORTED BY
DIAGEO PARTNER BREWER
Full Beer portfolio driving scale
through relative market share
Brewery in each market Deliver scale through Deliver scale through
TBA Diageo portfolio partner’s portfolio
Runway to launch and grow spirits
12
MS
Our model is unique because we play both as a full portfolio beer player in some markets, and as a
premium importer in other markets.
Our beer focused markets in Africa and Ireland make up the majority of our Beer NSV In each of these
markets we have a brewery in the market. We use Guinness, supported by a full portfolio to profitably fill
the brewery and deliver strong relative market share. This is the best known part of Diageo’s beer
business
However it is the premium import model that makes us different from other beer players
This model reaches the small number of markets where we ourselves distribute Guinness and other
differentiated premium variants; and it also reaches the c130 markets where Guinness is distributed and
sometimes brewed by a partner brewer
We produce great quality Guinness or the key ingredients in St James Gate in Dublin, a highly efficient
brewery operating at >90% capacity utilisation, and we export them around the world. This model is all
premium, highly differentiated and asset light
As a result the ROIC from the St James Gate brewery is significantly ahead of the overall Diageo ROIC and
one of the most profitable breweries in the world
12BEER FOCUS
BEER FOCUS DIAGEOTBA
DIAGEO TBA THIRD PARTY
MARKETS
MARKETS MARKETS
MARKETS MARKETS
1 1 2
3 1
1 1 2 GB
2 11 1
IRELAND
CANADA
2
3 2
USA 2 KOREA
2
1 1 1 1
1 1 1
2 1 1 1 12 1
NIGERIA
12 3 3
ETHIOPIA
1 1
1 22 1
GHANA
1 CAMEROON
UGANDA
KENYA 1
2 TANZANIA
2
5/22/2019 13 13
Source: Global Data, IWSR
MS
This unique route to market model allows us to generate scale which is so important in beer
We are number 1 or 2 player in 90% of the markets where we operate as beer focus markets
In the markets where we leverage the Diageo TBA portfolio we are either number one TBA player (in GB)
or the number three in US & Canada where we benefit from the scale of RTD and from sharing back
office costs
In the rest of the world we are with the number one or two player in over 2/3rds of our partner beer
markets spanning over 130 countries. There are some countries where we choose to partner with a
smaller player where that is the right for that market
Our job is to ensure that Guinness remains premium and iconic. That is what our partners need and that
is why the model works
13WHAT WE WILL COVER TODAY
Significant growth opportunity in Beer
Unique Diageo beer model
5 clear growth drivers
Delivering more consistent beer performance
Beer is accelerating our spirits performance in Africa
14
MS
To use this route to market to generate sustainable growth, we have five clear growth drivers
14DRIVERS OF DIAGEO BEER PERFORMANCE
5 Priorities
1 2 3 4 5
Strong Guinness Strengthening Scaling Investing Driving
brand health portfolio - local non-alcoholic to win productivity
priority brands
and innovation
15
MS
There are five core drivers that are delivering our growth in beer currently. The first of these drivers is Guinness
151.Strong Guinness brand health
GUINNESS IS A GLOBAL ICONIC BRAND
Global Premium beer brands (value)
Budweiser Heineken Corona Guinness Stella Artois Beck`s Carlsberg Tuborg 1664
no. of markets with
21 67 41 34 26 18 32 22 16
sales value >10m USD
16
Source: Global Data, 2018
Our route to market makes Guinness a scale brand. 4th largest premium beer brand in the world and at scale in over
30 countries
161. Strong Guinness brand health
WE PUNCH ABOVE OUR WEIGHT IN DRIVING TALKABILITY
TOTAL Q3 SOCIAL MENTIONS BY BRAND Index to beer Distinctivity Salience
377k
337k GB 217 120
Ireland* 234 187
258k USA 140 79
Kenya 182 195
Cameroon 212 146
Nigeria 151 117
50k Ghana 172 164
40k
8k 4k 2k Indonesia 147 142
Korea 153 107
Heineken Guinness Budweiser Carlsberg Corona Stella Tuborg Becks
Artois *ROI & NI combined
Source: Sprinklr, Total hashtag mentions January 1 - March 31 2019 Source : Brand Tracking Q2 F19 17
MS
We punch above our weight in our impact with consumers
We are the second most talked about brand in the world, despite being massively outspent in media by
HKN (3.5x) and BUD (more than double)
The reason we are able to deliver this cut through is because we do things differently. One of our core
beliefs is to behave in a way that ‘Only Guinness Can Do’ – a belief that dates all the way back to Arthur’s
decision to brew black beer when everyone else was brewing ale
The impact of this can be seen in our distinctivity scores – this is a critical part of how we measure brand
equity. The numbers are indexed to total beer at 100, and they show that we are the off the scale in
distincitivity.
When we drive distinctivity and salience then we drive great performance
171. Strong Guinness brand health
WE HAVE A CONSISTENT GROWTH MODEL
THAT IS DELIVERING GUINNESS PERFORMANCE
CREATIVE EXCELLENCE CREATING GUINNESS OCCASIONS BRAND TO BREWER IN CULTURE
OUTSTANDING PHYSICAL AVAILABILITY – INTERRUPTING THE SHOPPER AT THE POINT OF PURCHASE
18
MS
We have a consistent growth model for Guinness. Ed & Cristina spoke about creative excellence – this is
critical for Guinness with its long history of creativity. – we know that when our communications deliver
great creativity they also deliver great performance
I would like to share two recent examples of that the Guinness Purse ad to celebrate the new Guinness
Six Nations sponsorship
(Play video)
And also something a little different – Guinness Clear. This was very important for us to promote
responsible drinking and moderation as part of our sponsorship. What we saw was this ad performed in
testing as strongly as the award winning sapeurs ad, but more importantly was adopted into the
vernacular with people ordering Guinness Clear in bars all over Ireland and the UK
(Play video)
Rugby forms a key part of our strategy as a way to create occasions when people will choose Guinness
before they set foot in the pub. In Europe this is through rugby. In Africa we do the same through
football and took this to a new level by bringing Rio Ferdinand into Africa – in Cameroon last week. Our
activation films with Rio had the highest viewership on Facebook in Africa by any brand
We continue to show the depth of our brewing credentials on Guinness. Craft has raised the importance
of provenance, quality and storytelling. The brands that are winning in the post craft world are the
brands that are able to do this with authenticity and scale and we do this through experiences and
culture
18Finally, with beer in particular, we also have to excel in physical availability. We have one job to do when
someone walks into a bar, to stop them defaulting to lager and we use behavioural science and creative
flair to do this
181. Strong Guinness
brand health WE ARE RELENTLESSLY IMPROVING MEDIA ROI
THROUGH CREATIVE FLAIR AND RIGOROUS
ANALYSIS
GUINNESS ROI IN GB AWARDED DOUBLE GOLD
IPA EFFECTIVENESS
+60%
Source: Diageo internal data
19
MS
We have used our catalyst programme to continuously improve our marketing
We have improved the quality of creative and using precise tools to optimise media has grown Guinness ROI in GB,
(the biggest business in the world for Guinness) by 60% over the past 5 years. Over that time period our on-trade
share has grown by over 200bps to now reach record levels
In the US TV effectiveness increased by 75%, and our digital effectiveness has been optimised to deliver highly
efficient cut through.
This level of rigour and flair has now delivered Double Gold IPA effectiveness awards for Guinness as the best global
marketing campaign in any category
192. Strengthening portfolio - local priority brands and innovation
THE ROLE OF LAGER IN OUR PORTFOLIO IS DRIVEN
BY THE ROUTE TO MARKET
DIAGEO BEER PORTFOLIO IMPORT MARKETS
BEER FOCUSED MARKETS
NET SALES BY BRAND DIAGEO / 3RD PARTY
other beer Guinness
Serengeti
Tusker
Malta
Senator
Winning relative market share Building highly differentiated
by competing in the premium offerings
major profit pools
20
Source: Diageo organic results F19 H1
MS
The role that lager plays in our portfolio depends on the route to market
In the beer focus markets our goal is to maximize RMS and profitably fill the brewery, and the role of
lager is to ensure that we occupy the largest profit pools such as through the large national icon beer
brands Tusker, Bell & Serengeti
In the imported markets, our focus is exclusively on premium with highly differentiated lager offerings
202. Strengthening
portfolio - local priority
brands and innovation
DIAGEO’S LOCAL BEER PORTFOLIO IS
GETTING STRONGER
OUTSTANDING GROWTH OF SERENGETI IN BELL IN HIGH SINGLE
TANZANIA TO BECOME #1 BEER IN THE MARKET DIGIT GROWTH IN UGANDA
SENATOR IN KENYA CONTINUES TO BUILD NEW
SERENGETI TRADEMARK MARKET SHARE CHANNELS AND TO RECRUIT FROM ILLICIT
20.0%
15.0%
10.0%
5.0%
0.0%
21
MS
Our local beer brands in Africa are strengthening
Serengeti in Tanzania has doubled in share in the past 2 years driven by powerful innovation and great
flair in advertising.
– (SHOW SERENGETI AD)–
This has helped Serengeti become the number one beer in Tanzania.
Senator continues to grow rapidly. This is fueled by moving consumers to our brand out of harmful illicit
alcohol.
Finally Bell in Uganda has returned to high single digit growth in a market where Diageo share is growing
212. Strengthening portfolio - local priority brands and innovation
AND WE ARE ACCELERATING OUR PIVOT TOWARDS PREMIUM
LAGER OVER THE PAST FIVE YEARS
HOP HOUSE 13 SUCCESS IN GB, IRELAND ROCKSHORE LAGER RAPIDLY GAINING
SHARE IN IRELAND
GUINNESS GOLD LAUNCH IN NIGERIA RE-POSITIONED GUINNESS BLONDE
22
MS
Our pivot to premium lager is taking shape rapidly
Hop House 13 was launched 4 years ago in UK & Ireland. Over that time we have established a beer
brand that has 30pts more distinctivity than Peroni and was named by the Grocer magazine as one of the
top 5 fastest growing alcohol brands in UK last year
Rockshore was launched last year in Ireland and from a standing start has won 150 bps share of long
alcoholic drinks (LAD) in Ireland within a year
Guinness Gold is a new entry into the super premium lager space in Nigeria – recently launched and
doing well
Guinness Blonde is now 5 years on the market and re-positioned with its new provenance as brewed in
Open Gate Brewery, Maryland. This is an important sign of the impact the brewery is having placing
Guinness and our innovation in the local community, growing salience and sales
223. Exploring the growth opportunity in non-alcoholic
SCALE NON-ALCOHOLIC PARTICIPATION ACROSS AFRICA AND
RAPIDLY TESTING AND LEARNING IN EUROPE
SCALE & STRATEGIC ADVANTAGE IN AFRICA AGILE LEARNING AND INNOVATION IN EUROPE / US
23
MS
We are rapidly testing and learning in non alc
In Africa, our Malta Guinness non alc brand is over 30 years old, is deeply engrained in culture and is
growing strongly. We are able to drive scale and strategic advantage thanks to highly effective marketing
activations and format expansion to access new occasions.
In developed markets (Europe, US) we have a long standing participation in low-alc with Guinness mid-
strength and Open Gate Brewery platform gives access to high quality brewing and experimentation. We
are testing and learning what it takes to access this segment at scale – you tasted some of those
experiments last night
234. Investing to win
WE ARE SUPPORTING FUTURE GROWTH OF BEER WITH
SIGNIFICANT LONG TERM INVESTMENT IN CAPACITY AND
CONSUMER EXPERIENCES
INVESTING IN INVESTING IN INVESTING IN
CAPACITY IN KENYA CONSUMER EXPERIENCES CONSUMER PLATFORMS
Capacity to drive growth of US brewery: 6 year sponsorship deal for
Senator and reduce illicit alcohol 260 years of Irish brewing heritage Guinness Six Nations
consumption meets US Beer creativity
24
JOK
Thanks Mark.
We are actively supporting future growth of beer with some extensive investments in both capacity and
consumer experiences.
We’ve just completed a new £100M brewery in Kisumu in Kenya. This allows us to actively target
sourcing volume from the illicit sector with our brand called Senator
On the back of the success with the Guinness Storehouse in Dublin in the USA we’ve also built a new
brewery and visitor centre that’s already had 300K visitors to-date. As you have seen yesterday at the
showcase – the Open Gate Brewery offers an amazing opportunity for engaging consumers with
innovative products and bringing them into the world of Guinness.
Finally, you may have seen that we’ve just singed a 6 year sponsorship for the Guinness Six Nations.
(Play Video – Guinness Purse)
244. Investing to win
WE ARE SUPPORTING FUTURE GROWTH OF BEER WITH
SIGNIFICANT LONG TERM INVESTMENT IN CAPACITY AND
CONSUMER EXPERIENCES
INVESTING IN INVESTING IN INVESTING IN
CAPACITY IN KENYA CONSUMER EXPERIENCES CONSUMER PLATFORMS
Capacity to drive growth of US brewery: 6 year sponsorship deal for
Senator and reduce illicit alcohol 260 years of Irish brewing heritage Guinness Six Nations
consumption meets US Beer creativity
25
JOK
Thanks Mark.
We are actively supporting future growth of beer with some extensive investments in both capacity and
consumer experiences.
We’ve just completed a new £100M brewery in Kisumu in Kenya. This allows us to actively target
sourcing volume from the illicit sector with our brand called Senator
On the back of the success with the Guinness Storehouse in Dublin in the USA we’ve also built a new
brewery and visitor centre that’s already had 300K visitors to-date. As you have seen yesterday at the
showcase – the Open Gate Brewery offers an amazing opportunity for engaging consumers with
innovative products and bringing them into the world of Guinness.
Finally, you may have seen that we’ve just singed a 6 year sponsorship for the Guinness Six Nations.
(Play Video – Guinness Purse)
254.Investing to win
WE ARE INVESTING IN SUSTAINABILITY
LOCAL RAW MATERIALS USE RENEWABLE ENERGY SOURCING LEADERSHIP IN REMOVAL OF
% IN AFRICA PLASTICS
76% 78%
73%
F16 F17 F18
26
JOK
We’re also investing in Sustainability
In Africa we source 78% of our raw material inputs locally - aiming at 80% next year. To bring this to life,
we have a network of over 80,000 farmers supplying our African breweries.
• Kisumu, our newest brewery, contracted 15,000 new small holder farmers from a standing start last
year.
We are set to invest £180m in renewable energy sourcing across 7 of our African markets this year and
beyond. We believe this to be the most significant investment of its kind in Africa by a company like ours.
• This is a long-term commitment encompassing biomass, solar and water.
We are also removing plastic packaging from our beers out of St. James Gate – recyclable biodegradable
card will replace plastic shrink wrap and ring carriers around the likes of Guinness & Smithwicks.
So in total we’re making a lot of head-way on our Sustainability agenda across our beer business
265. Driving productivity
DRIVING PRODUCTIVITY HELPS US TO
DELIVER GROWTH MORE EFFICIENTLY AND
MORE PROFITABLY
COGS PER EU / CAGR SJG BREWING CONVERSION
COST PER HL
-1,1%
F14 F15 F16 F17 F18 F10 F14 F15 F16 F17 F18
27
Source: Euromonitor, Diageo internal data
JOK
We’re also driving productivity hard to help deliver growth more efficiently and more profitably.
Over the past year we have driven COGS reduction by -1% on yearly basis. This is underpinned by volume
increase, progress in capacity utilization as well as number of productivity initiatives in production and
supply chain areas. This has been delivered in the context of high single digit inflation in Africa (50% of
our business).
Our iconic St. James Gate brewery, that provides volume for Europe, US and much of Asia, has
consistently delivered conversion cost reduction and benchmarks very well vs the industry despite huge
complexity.
27WHAT WE WILL COVER TODAY
Significant growth opportunity in Beer
Unique Diageo beer model
5 clear growth drivers
Delivering more consistent beer performance
Beer is accelerating our spirits performance in Africa
28
JOK
As a result of executing these key drivers….
28BEER IS AN IMPORTANT DRIVER OF DIAGEO PERFORMANCE,
WE ARE DELIVERING INCREASINGLY CONSISTENT TOP LINE GROWTH
GLOBAL BEER DEVELOPED MARKETS EMERGING MARKETS
NSV PERFORMANCE NSV PERFORMANCE NSV PERFORMANCE
4.4% 5.8%
4.0% 3.9%
3.7%
3.5%
4.2%
3.0%
2.1%
2.2%
0.3%
F17 H1 F17 H2 F18 H1 F18 H2 F19 H1 F17 F18 F19H1 F17 F18 F19H1
29
JOK
Diageo beer performance has improved – delivering four consecutive halves where we have delivered
mid single digit growth
Both our developed and emerging markets contributed to that consistency of performance
29WHAT WE WILL COVER TODAY
Significant growth opportunity in Beer
Unique Diageo beer model
5 clear growth drivers
Delivering more consistent beer performance
Beer is accelerating our spirits performance in Africa
30
JOK
Finally, we’re participating in Africa first and foremost to access the very significant beer opportunity . Whilst we aren’t the
biggest beer player on the continent, where we play we have scale – typically either no 1 or 2.
Beyond the beer opportunity, there is then, the added benefit of the synergy between beer and spirits which allows us to
accelerate spirits growth.
30DIAGEO IS WELL PLACED TO TAKE ADVANTAGE OF THE GROWING
SPIRITS OPPORTUNITY IN AFRICA
AFRICA SPIRITS GROWTH DIAGEO SHARE OF SPIRITS
(value CAGR%) (value %)
60%
5.9%
50%
4.7%
40%
30%
20%
10%
0%
F13-F17 F18-F22 South Nigeria Ghana Angola Kenya Tanzania Cameroon Uganda Ethiopia Total
Africa Africa
Share
#1 #1 #3 #2 #1 #2 #1 #1 #1 #1
position
31
Source: IWSR, Diageo internal data
JOK
Spirits is growing faster than beer in Africa and is an attractive growth opportunity – the trend is
forecasted to accelerate
We are a scale player in both MSS (mainstream spirits) and IPS (international premium spirits), we also
enjoy #1 market share position in most markets
We’re 2x the size of the nearest the competitor In IPS and 1.5x the size of the biggest local player in
MSS. (source: IWSR)
31WE CAN LEVERAGE REAL SYNERGY BETWEEN BEER
AND SPIRITS TO DRIVE ACCELERATED GROWTH
DIAGEO AFRICA SPIRITS BEER AND SPIRITS PENETRATION
ORGANIC NSV GROWTH (% OF DRINKERS VS TOTAL)
(F11-F18 CAGR %)
NIGERIA KENYA
14.2%
13.5% 33% 44% 30% 38%
1% 4% 2%
11.5% 5%
10% 8%
16%
15%
22% 20%
24%
18%
3yr CAGR 5yr CAGR 7yr CAGR 2011 2017 2011 2015
spirits only markets tba markets spirits only beer and spirits beer only
Source: Kantar TNS Incidence studies; 32
Source: Diageo reported beer includes any branded beer/stout/ cider/ RTD
JOK
We can leverage our strong Beer RTM to deliver an accelerated spirits performance.
You can see (if we cut the data on a 3, 5 or 7 year basis) that in markets where we have a beer RTM our
spirits growth is significantly higher than those markets where we don’t
Encouragingly, on right hand side chart you can see the penetration of spirits in Africa is increasing
significantly. Over the past 6 years, In Nigeria it’s grown from 11% to 20% and in Kenya for example it’s
grown from 10% to also 20% .
The interesting thing is the number of consumers who are consuming both beer and spirits ( see the blue
bars) – very often on the same occasions within the same evening.
We are very excited by this development and why we firmly believe in that deploying a TBA strategy in
Africa is a real competitive advantage
32RESULTING IN STRONG PERFORMANCE OF OUR BRANDS
SUPPORTED BY STRONG INNOVATION AGENDA
SPIRITS GROWTH 5YR CAGR% AFRICA INNOVATION
(NSV F13 – F18)
45%
26%
15%
14%
10%
7%
5%
JW Black Smirnoff VAT69 JW Waragi Kenya Tanqueray
Label 1818 Reserve Cane TM
Source: Diageo organic 33
JOK
Our performance within spirits has been strong, across both our IPS and MSS brands.
We’ve also innovated strongly to broaden our portfolio and bring more consumers into the category
33AND SPIRITS BECOMING INCREASINGLY
IMPORTANT
DIAGEO AFRICA TBA CATEGORY SPLIT
(NSV)
24% 30%
6%
8%
70% 62%
F13 F18
Beer RTD Spirits
Source: Diageo organic 34
JOK
As a result , spirits have become an increasingly important part of our portfolio.
Now accounting for 30% of our business in Africa up from 24% 5 years ago.
Going forward, in the medium-term, I expect Africa business to grow mid to high single digit with beer
growing fast and spirits even faster.
34IN CLOSING
Beer is attractive and growing category
We have business model to access growth
We execute on clear priorities with Guinness at the heart of what we do
Our Africa RTM enables us to grow beer fast and spirits faster
Diageo beer delivers consistent sustained performance
35
JOK
So in closing:
The beer category is back in growth, driven by a number of key factors all of which play to our strengths.
We have a unique & highly profitable beer model that exposes us to growth with a fit for purpose distribution model
There are five drivers that underpin our growth – not least the growing health of the iconic Guinness brand
We are supporting future beer growth by investing in both brewing capacity and consumer experiences, enabled by a strong
step up in our sustainability & productivity agenda
Across Africa, our beer RTM adds top-spin to our spirits performance, and encouragingly we’re seeing spirits penetration
increase . As a result spirits is becoming a more significant part of our business.
In Africa i would expect us to continue to grow beer fast and spirits faster.
Within global beer we are driving increasingly consistent and sustained top-line growth
355/22/2019 By Gareth Edwards
36 36
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37•movements in the value of the assets and liabilities related to Diageo’s pension plans;
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•movements
Brexit in the value of the assets and liabilities related to Diageo’s pension plans;
There continues
•Diageo’s to be supply,
ability to renew uncertainty with respect
distribution, to the process
manufacturing surrounding
or licence agreementsthe
(orUnited
relatedKingdom’s
rights) and proposed
licences onexit from theterms,
favourable Europea
or atnall,
Union.
whenWe
theycontinue
expire; orto believe that, in the event of
•any failure
either by Diageo to
a negotiated exitprotect its intellectual
or no-deal scenario,property rights.
the direct financial impact to Diageo will not be material. In the EU, we expect that our finished case goods will continue to trade tariff free
in either scenario. While there continues to be uncertainty over future trading arrangements between the UK and the rest of the world, we have mitigation plans in place for the short-
Brexit
term disruption that could arise from a ‘no deal’ scenario; in which the UK leaves the EU without the parties reaching a form al withdrawal agreement approved by the UK Parliament,
There continues to be uncertainty with respect to the process surrounding the United Kingdom’s proposed exit from the European Union. We continue to believe that, in the event of either a negotiated
and
exit including
or no-deal the inability
scenario, of the
the direct UK Government
financial to renew
impact to Diageo will existing EU Free
not be material. In Trade
the EU,Agreements
we expect thatwithourthird partycase
finished countries
goods to
willwhich we to
continue export
trade and
tariffwhere
free in trading could revert
either scenario. Whiletothere
WTO
rules. We
continues have
to be further considered
uncertainty the principal
over future trading impact to
arrangements our supply
between the UK chain
and which
the restweof have assessed
the world, we have as mitigation
limited and have
plans in appropr
place foriate stock levels
the short-term in placethat
disruption to mitigate thisfrom
could arise risk.a ‘no deal’
The full implications of Brexit will not be understood until future tariffs, trade, regulatory, tax, and other free trade agr eements to be entered into by
scenario; in which the UK leaves the EU without the parties reaching a formal withdrawal agreement approved by the UK Parliament, and including the inability of the UK Government to renew existingthe United Kingdom are
EUestablished. Furthermore,
Free Trade Agreements wethird
with could experience
party countries changes
to which we to laws
exportandandregulations
where trading post Brexit,
could in to
revert areas
WTOsuch asWe
rules. intellectual prop
have further erty rights,
considered theemployment,
principal impactenvironment, supply
to our supply chainchain
which we
logistics,
have assessed dataasprotection,
limited andand
havehealth and safety.
appropriate stock levels in place to mitigate this risk.
A cross-functional
The full implications ofworking group
Brexit will is understood
not be in place that meets
until futureontariffs,
a regular
trade,basis to identify
regulatory, andother
tax, and assess
freethe
tradeconsequences
agreements toofbe Brexit,
enteredwith allbymajor
into functions
the United withinare
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established. Furthermore,
weWe continue
could to monitor
experience changesthistorisk
lawsarea
and very closely,
regulations including
post a areas
Brexit, in continuing focus
such as on identifying
intellectual propertycritical
rights,decision
employment,points to e nsure potential
environment, supply chaindisruption
logistics, isdata
minimised, andand
protection, take prudent
health and safety.
A actions
cross-functional working
to mitigate group is inpractical.
risk wherever place that meets on a regular basis to identify and assess the consequences of Brexit, with all major functions within our business represented. We continue to
monitor this risk area very closely, including a continuing focus on identifying critical decision points to ensure potential disruption is minimised, and take prudent actions to mitigate risk wherever
practical.
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