Diageo splashes out to tap whisky boom

By David Jones June 6, 2012
Drinks group Diageo Plc is to invest over 1 billion pounds ($1.5 billion) in Scotch whisky production over the next five years, creating hundreds of jobs, to meet growing demand from the emerging markets of Asia, Latin America and Africa.

The maker of Johnnie Walker, J&B and Bells whisky said it plans to build a new malt distillery, expand a number of its other distilleries and develop plans for a second new distillery if global demand is sustained at expected levels.

The group, the largest producer of scotch whisky with around a third of the market, is seeing strong growth in markets from Boston to Beijing, particularly for its expensive whiskies as drinkers worldwide acquire a taste for the Scottish tipple.

"We expect that success to continue, particularly in the high-growth markets around the world, which is why we are announcing this major investment in Scotch whisky production," said Chief Executive Paul Walsh said a statement on Wednesday.

Diageo's Scotch whisky sales have risen 50 percent over the last five years to nearly 3 billion pounds last year, creating a third of group profits and in the last half of 2011 the Scotch market saw volumes grow 8 percent and sales some 14 percent.

Demand is led by emerging markets such as China, Brazil and Russia and prompted the world's second-biggest Scotch producer Pernod Ricard (PERP.PA: Quote, Profile, Research, Stock Buzz) to unveil a 40 million pound investment last week to boost supplies of its top sellers like Ballantine's and Chivas Regal.

Over the next five years, Diageo said it will invest over 500 million pounds in the construction of distilling and warehousing, while it will commit a further 500 million pounds in working capital for the resultant maturing spirits.

Diageo said its investment will create 250 construction jobs over the five-year period and generate a further 500 jobs at its plants and throughout the wider Scottish economy.

Analyst Chris Pitcher at broker Redburn said Scotch production is a barometer of confidence and with demand well based, this new confidence in the industry is well founded.

"If Scotch delivers as forecast, Diageo will enter a new era of above-trend growth," he said.