Diageo to invest $100 mn to craft new products in India, says top boss

New Delhi: Diageo Plc, the world’s largest spirits maker, will invest $100 million ( ₹840 crore) into the Indian market over the next three years to develop new products and expand its portfolio of premium spirits, said its chief executive officer Debra Crew.

Crew took over as the top boss of the over $20-billion spirits company last year. Diageo expanded its India business with the 2014 acquisition of homegrown United Spirits Ltd. Since then, the company has invested $3.5 billion into India to expand capacity, make acquisitions and spend on cricketing properties such as the Indian Premier League.

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

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"India is really critical for us," Crew told mint in an interview with Mint, citing how the company’s growth has nearly doubled from about 5% to 11% in the last couple of years, outperforming peers.

“We really see a great 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 top whisky market by value over the next three years, overtaking the US. India is home to a large drinking population and ranks alongside top consumers of alcoholic beverages. Yet, household consumption of alcohol here is half of what Diageo sees in the UK or the US.

In FY24, Diageo India's consolidated revenue from operations dropped 7.8% to ₹25,389 crore on account of high inflation. Its profit after tax was up 24.7% at ₹1,312 crore due to lower excise duties and earnings from other revenue.

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The company operates 36 manufacturing facilities in the country.

"We contributed $2.5 billion to the Indian exchequer last year, and we really do see ourselves as an Indian company with global roots," she said. More than 90% of the volume is made in India."

To be sure, taxes account for about 80% of alcohol’s price in India.

"It's exciting to see premiumisation and technical innovation in India. In fact, the country is now emerging as a key innovation hub for us," Crew said, which is testing newer products in India and then launching them in international markets as well. Diageo now exports its first batch of locally developed single-malt whisky Godawan to the UK. It also launched McDowell’s single malt and Royal Challenge American pride.

That’s part of the larger trend, as Mint reported last month that Indian spirit makers are either looking at or already exporting premium spirits to international markets.

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"It's been an ambitious plan (to export out of India) but to really see it come to the forefront is quite exciting," Crew said. “The Indian market is so vibrant, young and is adding wealth, so there is a ton of opportunity, especially when we compare it to the rest of the globe at this moment with the macroeconomic conditions and geopolitical uncertainty."

Diageo has an appetite to invest in homegrown brands given the “right opportunity".

The country has seen an uptick in craft spirit brands appealing to younger consumers. In 2022, Diageo capitalized on this by investing in Nao Spirits & Beverages, which sells craft gins like Hapusa and Greater Than. It also invested ₹45 crore in an innovation hub in Goa the same year. The hub will help the company develop a portfolio of craft and premium alcoholic beverages such as gin and rum.

"We see both organic and inorganic growth in the country, and we have made some initial investments. We are now debt-free and we have no issue on cash and it is available to invest at the right opportunity," Crew said. “We are looking at quality craft premium opportunities to invest in and so, we'll continue to see. Since we have great innovation capability ourselves, there's a lot of things we can do ourselves too."

Large consumer product companies have been stepping up investments here. That’s because India, with its large young population, is a country of tipplers that annually delivers 15 to 20 million people of legal drinking age, according to market researcher IWSR. The domestic spirits market, it said, will grow by an additional $7 billion by 2028 from the current $32 billion.

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

Inflation Bump

For consumer companies, inflation has dampened discretionary consumption not just in India but globally as well. Also, for makers of beers to whiskies, there’s an added concern: younger consumers are also drinking in moderation.

Fiscal 2024 was challenging for the industry and Diageo because of continued "macroeconomic and geopolitical volatility", the company said in its earnings announcement earlier this year.

And while Crew is optimistic that Indian consumers are more willing to spend on discretionary products than global counterparts, she admitted that the pressure on them “continues".

Diageo is cautious about inflation, particularly in India, where the cost of extra neutral alcohol (the purest form) is rising due to the government’s push for ethanol blending. Other costs such as glass prices, however, have moderated.

"Inflation is still elevated compared to history," Crew said. “We do see it is different in different parts of the world, and in Europe it's coming down a little bit quicker. In the US, it's hung there a bit longer, so we're keeping a close watch on it. Our input cost, we do hedge…and try to manage some of that volatility as well."

In July, the company found itself in trouble in a large showcase market, Delhi. According to a Reuters news report, top executives of the company were summoned by Delhi Police for alleged irregularities in supplying liquor to the state government-run shops between 2017 and 2020. In a statement then, the company said: "Such notices from regulatory authorities requesting information are usually addressed to the company head - this is a routine process. Diageo India has always maintained the highest standards of regulatory compliance."

In response to Mint’s query on Thursday, the company added: "There are ongoing matters, we're dealing with them. We have not had any ongoing challenges."