Diageo raises the bar with mini bottles

DIAGEO, the maker of Smirnoff vodka, Johnnie Walker whisky, and scores of other liquor brands, has introduced 20-centilitre containers — a bit less than a third the size of a normal bottle of spirits — in sub-Saharan Africa.

The approach provides a cheaper way for friends to share one of Diageo’s global brands instead of choosing a local tipple or a beer.

"There’s a perception that spirits are expensive in Africa," Diageo MD Gerald Mahinda said at an investor conference in London. "This allows people to try them."

With fast-growing economies and relatively low alcohol consumption — Nigerians last year drank 0.3-litres of spirits each and Ghanaians 2.4l, versus 20.9l in Russia and 7.4l in the US — the company says Africa is becoming a major battleground for alcohol producers.

Although the scant consumption is largely due to low incomes, consumer spending power is increasing, Mr Mahinda said.

The smaller bottles have helped the brand grow an average of 60% a year in South Africa since their introduction in 2010. Last year, Diageo started selling the bottles in Ghana and Nigeria. While beer accounts for about two-thirds of Diageo’s Africa revenue — its Guinness was first exported to Sierra Leone in 1862 — the company lags behind SABMiller and Heineken in the region.

In sub-Saharan Africa, by contrast, the company is the clear market leader in sales of branded spirits, according to UBS, eclipsing rival Pernod Ricard SA.

Diageo had African revenue of £1.5bn last year, or 13% of the company’s global total, and about seven times Pernod’s sales in the region.

Pernod’s incoming CEO, Alexandre Ricard, has said Africa is a priority and told reporters that the region is "like Asia was 15 years ago". The company made its first major push in the region outside of South Africa in the past two years, and Africa accounts for about 3% of its global sales. "Diageo has a clear competitive head start" over Pernod, said Melissa Earlam, an analyst at UBS in London. With demand rising fast, though, there is plenty of opportunity for all players, she said.

With its mini bottles, Diageo is taking a page from consumer-goods giant Unilever, which has long sold small sachets of shampoos and soaps in Asia for just pennies apiece, according to Martin Deboo, an analyst at Investec.

The company is working with owners of mainstream bars such as licensed shebeens to attract lower-income drinkers who have not traditionally consumed its brands.

Diageo sales staff tour such venues urging bartenders to serve shots of its spirits. To woo drinkers off moonshine and local brands, Diageo has created cheaper labels.

Its Jebel gin, Smirnoff 1818 vodka, and Richot brandy, for instance, cost less than $10 for a standard 700ml bottle. Such brands offer better margins than beer, Diageo says, and are about as profitable as big names like Johnnie Walker or Baileys.

Diageo plans a "ladder" of brands at different prices to cater to consumers who may seek a shot of Johnnie Walker after they get paid, but choose Jebel in tighter times. Mr Mahinda says Africans are keen to adopt new products.