Diageo announces £1bn Scotch investment programme

6th June, 2012 by Becky Paskin

Diageo has revealed plans to invest over £1bn into Scotch whisky production over the next five years in order to meet escalating global demand for its brands.

Johnnie Walker Black Label Scotch whisky production

Diageo's power brand Johnnie Walker will get a production boost over the next five years

As part of its investment, Diageo intends to build a new £500m malt distillery while expanding a number of the group’s existing distilleries. Plans are also in place for an additional, second new distillery should Scotch consumption maintain expected growth levels.

To cope with the increased output, Diageo will also invest £500m in a “substantial” new warehousing facility.

Paul Walsh, chief executive of Diageo, said the announcement marks a “pivotal moment” in the development of the group’s Scotch whisky brands, net sales of which have grown by 50% in the last five years.

“Over recent years our brands have achieved remarkable, sustained global growth,” he said. “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, committing over £1billion in the next five years, to seize that opportunity for global growth.

“This builds on the foundations we have already laid down over recent years through sustained investment in both production assets and in maturing Scotch inventories.”

Scotch now accounts for a third of Diageo’s gross profits, and is expected to reach £3bn in net sales by the end of this financial year.

Emerging market growth

The global Scotch whisky category is expected to maintain a steady +3% growth each year for the next decade, according to analysts from Redburn. Growth is forecast to be greater in the emerging markets than in the developed world, with “the most interesting” opportunity for consumption coming from India.

“This is an important inflection point which highlights the broad-based appeal the product has achieved; a diversification of demand that underwrites the record levels of raw spirit being produced today,” said Chris Pitcher, partner of beverages and tobacco research at Redburn.

“But the opportunity stretches beyond raw consumption growth. Borrowing from the Cognac industry, where premium brands account for over 50% of consumption, there is huge scope to grow premium and deluxe Scotches, which today account for only 27% of industry volume. Scotch has genuine luxury credentials and both Diageo and Pernod, the two leading Scotch distillers, are investing behind this opportunity.”

Pernod Ricard also recently announced a £40m investment into its Chivas Brothers business to expand its distilleries at Glenallachie, Glentauchers, Tormore and Longmorn, reopen and extend the dormant Glenkeith distillery, and open a new bottling hall for ultra-premium Scotch in Paisley.

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