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The Top 10 Spirits Companies
A study of how the leading players are driving growth and innovation
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Disclaimer
Copyright © 2013 Datamonitor
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DIAGEO
Summary
 Diageo is the world's leading premium drinks business with a wide portfolio of alcoholic
beverages across spirits, beer, and wine, including a global leadership position in
whiskey.
 2011/12 was an exceptionally good year for the company, with net sales up an
impressive 8% to £14,524m. This more than compensated for a somewhat modest
increase the previous year, but was an achievement that appears will not be repeated in
the latest financial period. Preliminary results for the year ended June 30, 2013 revealed
net sales growth of just 5%.
 After the financial crisis Diageo realized that its portfolio of brands was too heavily
weighted in mature Western markets, and so it set an ambitious target of having half of
the revenues derived from emerging markets by 2015. As a result, Diageo's strategy
revolves around making acquisitions of companies in emerging markets with both strong
local routes to market, and with brands that can be 'premiumized' to appeal to the
growing number of middle class consumers.
 Innovation forms a crucial part of Diageo's growth strategy, playing a key role in ensuring
that the company's brands are well positioned for continued growth. Recent launches
have focused on consumers' desire for luxury, driven by the tastes and increasing
affluence of the emerging middle class consumer, and on increasing the accessibility of
spirits through flavor extensions and new packaging and drink formats.
 Diageo's one weak spot in the North American market is its presence in the bourbon
category. A rumored bid for Jim Beam therefore makes sense, although it is contrary to
the current focus on emerging markets.
Company overview
Diageo is still a relatively young company, having only existed in its current form since 1997 when
it was created through the merger of Guinness PLC with Grand Metropolitan PLC. In 2001 it
acquired additional spirits and wine brands from Seagram, and has subsequently expanded its
range through selective acquisitions, strategic partnerships, and innovation. In 2013 it took a 25%
share in United Spirits of India.
Table 12: Diageo key stats
Headquartered London, UK
Turnover ($m), 2012 14,524
Employees, global 9,600
Income ($m), 2012 10,692
Sales volume (9L cases), 2012 156 million
Source:
Company reports
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It is also, indisputably, the world's leading premium drinks business with an outstanding (some
might say a surfeit), collection of alcoholic beverages across spirits, beer, and wine, including a
global leadership position in whiskey. The company's portfolio includes:

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Fig 20: Pernod Ricard innovation: opportunities and challenges
Source:
Datamonitor
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Absolut facing challenge of maturity through variations
Innovation is seen as a key focus for Pernod Ricard, and consequently there have been a rapid
succession of product launches over the years. These can take the form of flavor and brand
extensions, limited editions, image revitalization, innovative packing ideas, consumer audience
and sales channel extensions and, of course, new product launches. Absolut vodka, which is
reportedly the second biggest vodka brand in the world has focused on releasing numerous flavor
extensions, with an Absolut Peppar launch in 1986, followed by a succession of further
introductions. Since the start of 2012, Absolut Cherrykran (a blend of cherry, cranberry, and sweet
plums), Absolut Hibiskus (a blend of hibiscus flower and pomegranate) and Absolut Cilantro
(flavored with lime and coriander) have joined a dozen or more other flavors. These are in
addition to the launch of numerous specialized bottles such as Absolut Denim (denim-wrapped),
Absolut Exposure (a designer bottle carrying prints of actress and supermodel Lydia Hears), and
Absolut Unique (a limited edition of four million uniquely designed and individually numbered
bottles). Innovation is crucial for Absolut as it faces up to the challenges of relative maturity in the
US

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Source: Rémy
Cointreau
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The key to Rémy Cointreau's strong performance was the combined effect of price increases and
innovation. Rémy Martin XO Centaure launched in Asia in 2011 and Rémy Martin VSOP limited
edition fine champagne cognac launched in 2012. The company reported that Rémy Martin
cognac achieved growth for a fourth successive year in 2012, increasing in value by 12.7%,
thereby accounting for some 60.3% of Rémy Cointreau's sales. At the same time, 60.2% of Rémy
Martin's cognac sales were in Asia. Liqueurs and other spirits accounted for 20.0% of company
sales, while partner brands, such as those of the Edrington Group, accounted for the remaining.
Cointreau liqueur also performed well, thanks to increased marketing investment in its key US
market coupled with an upturn in the on-premise sector. Despite the continued challenging
economic situation in its homeland, Greek spirit Metaxa reported growth thanks to its Eastern
European markets (including the Czech Republic, Hungary, and Poland). Nevertheless, a high
reliance on Greece continued. Bruichladdich, which only joined the portfolio in September 2012,
did not have a significant impact during the period.
Future financial results will undoubtedly be negatively impacted by the Edrington Group's
announcement that it is to discontinue its long-standing partnership with Rémy Cointreau in the
US from the end of March 2014. The whiskey producer is taking over its own distribution in this
market. Rémy Cointreau has handled the Edrington Group's portfolio in the US market since
1985, and this has represented a significant segment of Rémy Cointreau's US business in recent
years. The Edrington Group portfolio accounts for around one third of Rémy Cointreau's US
market volumes, so it will be sorely missed. However, the purchase of the Bruichladdich Scotch
whiskey company should help in contributing some future contribution towards US turnover.
Another major concern is the crackdown on conspicuous consumption by the Chinese authorities
in the wake of a number of corruption scandals in the country. As a result, the lucrative gifting
market is being squeezed. There are now concerns that the cognac boom in Asia may finally be
slowing. According to the BNIC, exports were flat or down between August and October 2013,
compared to the previous year. Another major problem is the planned change to the minimum
age of 'extra old' (XO) cognac from six years in the barrel to 10 years in 2016. This will further
constrain supplies, already under pressure from unexpectedly high demand in the past few years.
Revising this regulation would add some oxygen to the market. Indeed, there is already growing
demand from Vietnam, while strength is returning to the South Korean market. Additionally, there
is still room for growth in Greater China, with demand spreading from the south and east of the
country to fast-growing cities in the interior. Meanwhile, although corporate gifting remains very
important, there is also increasing trade from clubs and bars, where cognac is consumed with ice
or mixers.

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