Diageo to invest $100 million to make new products in India, says top boss

New Delhi: Diageo Plc, the world’s largest spirits producer, will invest $100 million ( ₹The company aims to inject around Rs 840 crore into the Indian market over the next three years to develop new products and expand its premium spirits portfolio, said CEO Debra Crew.

Crew took over as head of the $20 billion-plus spirits company last year. Diageo expanded its operations in India with the 2014 acquisition of domestic United Spirits Ltd. Since then, the company has invested $3.5 billion in India to expand production capacity, make acquisitions and spend money on cricket-related properties such as the Indian Premier League.

India, where Diageo operates through USL, is the largest market for the maker of Johnnie Walker Scotch whisky, Tanqueray gin, McDowell’s whisky, Smirnoff vodka and Singleton Scotch whisky.

“India is really key for us,” Crew told Mint, pointing out that the company’s growth has nearly doubled over the past few years, from about 5% to 11%, outpacing that of its competitors.

“We really see a huge opportunity in the market,” she said. “We will continue to invest capital — $100 million — over the next three years.”

Crew expects India to be Diageo’s largest whisky market by value in the next three years, overtaking the US. India is home to a large drinking population and ranks among the world’s biggest consumers of spirits. However, household alcohol consumption here is half of what Diageo sees in the UK or US.

In FY24, Diageo India’s consolidated operating income declined by 7.8% to ₹25,389 crore due to high inflation. Net profit increased by 24.7% ₹1,312 crore due to lower excise duties and revenue from other sources.

The company operates 36 production plants across the country.

“We put $2.5 billion into the Indian treasury last year and we really see ourselves as an Indian company with global roots,” she said. More than 90% of our volume is generated in India.”

There is no doubt that taxes account for about 80% of the price of alcohol in India.

“It’s exciting to see premiumisation and technical innovation in India. It’s really becoming a key innovation hub for us,” said Crew, who tests newer products in India before launching them internationally. Diageo is now exporting its first batch of locally developed Godawan single malt whisky to the UK. It has also launched McDowell’s and Royal Challenge American Pride single malts.

It’s part of a broader trend, which Mint reported last month, that Indian spirits producers are considering or already doing so by exporting their premium spirits to international markets.

“It was an ambitious plan (to export from India), but to see it really come to the forefront is very exciting,” Crew said. “The Indian market is so vibrant, so young and adding wealth, so there’s a lot of opportunity, especially when you compare it to the rest of the world at the moment, given the macroeconomic conditions and geopolitical uncertainty.”

Diageo is keen to invest in domestic brands if the “right opportunity” arises.

The country has seen a rise in craft spirits brands that appeal to younger consumers. In 2022, Diageo capitalized on this by investing in Nao Spirits & Beverages, which sells craft gins such as Hapusa and Greater Than. It also invested ₹45 crore in an innovation centre in Goa in the same year. The centre will help the company expand its portfolio of craft and premium spirits such as gin and rum.

“We are seeing both organic and inorganic growth in the country and have made some initial investments. Now we are debt-free and cash-efficient, and it is available to invest when the opportunity arises,” Crew said. “We are looking at investing in high-quality, premium products, so we will continue to watch. Since we have a lot of innovation capabilities ourselves, there are a lot of things we can do ourselves.”

Big consumer goods companies have stepped up investment here. That’s because India, with its large young population, is a drinking nation that adds 15 to 20 million people of legal drinking age each year, according to market researcher IWSR. The country’s spirits market is expected to grow by an additional $7 billion by 2028 from $32 billion now, it said.

Last year, rival Pernod Ricard said it was on track to triple net sales in India over the next decade. The Indian unit of the French spirits giant, which sells brands including Royal Stag, Blenders Pride and 100 Pipers, is also set to open a malt spirit distillery in Nagpur with an investment ₹1,794 crore over the next decade.

Inflation rises

For consumer companies, inflation has dampened discretionary consumption not only in India but around the world. And beer and whisky makers have an additional concern: younger consumers are also drinking in moderation.

As the company said in its financial results announcement earlier this year, fiscal 2024 has proven to be challenging for the industry and for Diageo due to ongoing “macroeconomic and geopolitical volatility.”

While Crew is optimistic that Indian consumers are more willing to spend money on discretionary products than their global counterparts, she admits that the pressure on them “lingers.”

Diageo is wary of inflation, particularly in India, where the cost of additional neutral alcohol (the purest form) is rising due to government pressure to blend ethanol. Other costs, such as glass prices, have slowed, however.

“Inflation is still high relative to history,” Crew said. “We’re seeing it’s different in different parts of the world, and in Europe it’s coming down a little faster. It’s been a little longer in the U.S., so we’re watching that closely. Our input costs, we’re hedging … and trying to manage some of that volatility.”

In July, the company ran into trouble at a major trade show in Delhi. According to a report by Reuters, top executives of the company were summoned by the Delhi police for alleged irregularities in supplying alcohol to state government-run stores between 2017 and 2020. In a statement, the company said at the time: “Such notices from regulators seeking information are usually directed to the head of the company — it is a routine process. Diageo India has always maintained the highest standards of regulatory compliance.”

In response to Mint’s inquiry on Thursday, the company added: “There are ongoing issues, we are looking into them. We have not had any ongoing challenges.”