Diageo unveils $100 million investment in Indian spirits expansion

Diageo Plc, the world's leading spirits producer, plans to invest $100 million (₹840 crore) in the Indian market over the next three years. This investment, announced by CEO Debra Crew, will focus on developing new products and expanding its premium spirits portfolio.

Since 2014, the company has already invested $3.5 billion in India to increase capacity, acquire businesses, and support cricketing events like the Indian Premier League.

Operating through USL in India, Diageo sees the country as its largest market by volume for brands such as Johnnie Walker, Tanqueray, McDowell’s, Smirnoff, and Singleton.

Crew highlighted the company's impressive growth in India, which has surged from about 5% to 11% in recent years, noting, "India is really critical for us."

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

Crew anticipates that India will become Diageo's leading whisky market by value within the next three years, surpassing the US. India has a substantial drinking population and ranks among the top consumers of alcoholic beverages.

However, household alcohol consumption in India remains only half of what Diageo observes in the UK or the US. In FY24, Diageo India's consolidated revenue fell by 7.8% to₹25,389 crore due to high inflation, while its profit after tax increased by 24.7% to₹1,312 crore, thanks to lower excise duties and other revenue sources.

The company operates 36 manufacturing facilities across 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. More than 90% of the volume is made in India," said Crew.

It’s important to note that taxes make up roughly 80% of the price of alcohol in India.

"It's exciting to see premiumization 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 has begun exporting its first batch of locally crafted single-malt whisky, Godawan, to the UK. Additionally, the company has introduced McDowell’s Single Malt and Royal Challenge American Pride.

"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 and 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," she added.

Diageo is eager to invest in homegrown brands when presented with the "right opportunity." The rise of craft spirit brands attracting younger consumers in India has been notable.

In 2022, Diageo took advantage of this trend by investing in Nao Spirits & Beverages, known for its craft gins like Hapusa and Greater Than. The company also invested ₹45 crore in an innovation hub in Goa that year.

This hub aims to support the development of a range of craft and premium alcoholic beverages, including 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 with 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," she added.

Major consumer product companies are increasing their investments in India due to its large, youthful population and significant drinking demographic. According to market researcher IWSR, India adds 15 to 20 million legal drinkers annually.

The domestic spirits market is expected to grow by an additional $7 billion by 2028, expanding from its current $32 billion. Last year, competitor Pernod Ricard announced plans to triple its net sales in India over the next decade.

The French liquor giant, known for brands like Royal Stag, Blenders Pride, and 100 Pipers, will also invest ₹1,794 crore to open a malt spirit distillery in Nagpur within the next ten years.

Despite this, inflation has reduced discretionary spending globally, and younger consumers are tending to drink more moderately.

In its earnings announcement earlier this year, Diageo noted that Fiscal 2024 was challenging due to ongoing "macroeconomic and geopolitical volatility."

While Crew remains hopeful that Indian consumers are more inclined to spend on discretionary items compared to their global peers, she acknowledged that financial pressures on them persist.

Diageo is particularly wary of inflation in India, where the rising cost of extra-neutral alcohol—driven by the government's ethanol blending initiatives—is a concern. However, other expenses, such as glass prices, have eased.

"Inflation is still elevated compared to history. We do see it is different in different parts of the world, and in Europe it's coming down a little bit quicker,” Crew said.

“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," she added.

In July, Diageo faced issues in a major market, Delhi, where top executives were summoned by Delhi Police over alleged irregularities in supplying liquor to state government-run stores from 2017 to 2020.

The company responded by stating that such notices from regulatory authorities requesting information are typically directed to the company’s head and are part of a routine process.

Diageo India emphasized its commitment to upholding the highest standards of regulatory compliance. On Sep 5, the company added, "We are addressing ongoing matters and have not encountered any persistent challenges.”