All the global spirits players want to make niche acquisitions in countries where ownership of a prestigious local brand provides accelerated access to that market for their premium international products, at the same time as adding another profitable line to their portfolios, especially if it can be exploited in the travel sector. If that cannot be achieved, they are setting up their own local sales organisations rather than dealing with local agents. The trend has been evident for more than a decade during which Diageo, Pernod Ricard, Beam, Davide Campari and Rémy Cointreau among others have all entered new profitable markets as growth in mature regions such as Western Europe has slowed and stagnated, especially following the 2008 global financial crisis. While the tactic has delivered enormous potential and, in some cases, healthy contributions, events of the past couple of years have brought to the fore the problems of dealing with the differing business systems and governments of emerging markets. The past few years have been strewn with examples. For instance, no sooner had Diageo completed its 2012 takeover of Mey Icki, Turkey’s largest spirits group, than the government introduced advertising and sales restrictions which put a brake on developing its undoubted potential. Similarly, within 12 months of taking control of Shui Jing Fang in China, Diageo has had to write down the value of its purchase of the baijiu producer after sales fell by 78% in the wake of Beijing’s crackdown on ostentatious entertaining and gifting. The same government action hit Rémy Cointreau hard as China accounts for more than half the sales and margins of its flagship Rémy Martin Cognac. Similarly, Pernod Ricard, the largest spirits importer to China, acknowledges that it has been affected by widespread trading down the quality and price scale, with a consequent effect on margins and earnings. To read more, please visit: www.thedrinksbusiness.com/2014/12/top-players-put-faith-in-emerging-mark...
