The future of spirits in Africa

While the eyes of the spirits industry are firmly fixed on the Far East, the big drinks companies are quietly making inroads in the continent they are calling “the Final Frontier”.

The big drinks companies are viewing Africa as a blank canvas as far as spirits are concerned

Outside South Africa and its smattering of high-end hotel bars, Africa has no established international spirits culture, and locally brewed spirits – or “hot drinks” as they are apparently called locally – are drunk only to “put fire in your belly”.

So why are the likes of Pernod Ricard and Diageo making such a fuss about a place that is over 30% desert and is stereotyped as the world’s poorest continent by per capital GDP?

Maybe because Africa is home to seven of the world’s 10 fastest growing  economies, according to the International Monetary Fund and, while there are currently 800 million consumers, an additional 85m are due to reach legal drinking age over the next decade.

The pipeline for planned hotels in sub-Saharan Africa has exploded by 42% this year, while the number of countries with civil unrest is also dwindling, allowing businesses to trade more easily.

“With economic growth as it is and the emergence of a middle class that has more disposable income, we have an opportunity to move people from the ‘hot drinks’ that they’re drinking and into international premium brands,” said John Williams, innovation director for Africa at Diageo.

“But we’ve had to take it back to basics. We’re using brands like Smirnoff and Gordon’s to educate bartenders in how to serve spirits, because that knowledge doesn’t exist. The biggest innovation we’re doing is to recreate the spirits culture that exists elsewhere in the world and take it to the mainstream bars in countries like Ghana, and cities like Nairobi and Lagos.”

Vodka & Orange = Innovative?

It’s a tricky goal for Diageo, which says that even the notion of mixing vodka with orange juice is considered innovative. Diageo is the first to admit that Guinness is its bread and butter in Africa, but its rapidly growing herbal and fruit RTD category, with products designed specifically for the African market such as newly launched apple drink Snapp, is providing the company with a base for introducing spirits to the masses.

In fact, 2011-12 has been the group’s biggest launch year ever, with 24 new brand extensions in sub-Saharan Africa alone. “We’re trying to understand whether giving consumers the end drink experience in an easy way can accelerate their spirits consumption. Ultimately it then takes away the need to educate a bartender to mix it,” said Williams.

While Diageo has had several breweries and warehouses established in Africa for decades, other drinks companies such as India’s United Spirits – which has vast experience in delivering premium brand experiences without the associated price tag – and Pernod Ricard, are just getting started on increasing their presence in the continent.

In 2010, Pernod had just one subsidiary and two branches in South Africa, the Ivory Coast and Gabon. Last year it opened subsidiaries in Namibia and Kenya, and is about to enter Ghana, Morocco and Nigeria.

“Our staff numbers in Africa are expanding on a weekly basis,” said Alex Ricard, managing director for distribution at Pernod, whose Chivas Brothers business is going great guns with brands such as Chivas Regal, Ballantine’s, Passport, The Glenlivet, and Royal Salute. The group even claims to have some exciting pockets of Beefeater gin growth.

“Clearly Africa is an area of growth where we have decided as a group to invest more,” added Chivas Brothers chairman and CEO Christian Porta. “We see this as an opportunity; this for us is very much untapped territory. But we are slightly behind our main competitor [Diageo] – they have a large beer business which we don’t have.”

Shaping the future, today

Using its experience from expansion into Asia and Eastern Europe, Chivas  Brothers is implementing international campaigns on a local level, adapting them where needed depending on their maturity and what can be done in terms of advertising.

But is there a limit to what the drinks giants can achieve, considering that infrastructure isn’t as developed as in Europe or the US?

“Some of the service companies you’d get in more mature markets aren’t there yet,” admits Rowan Leibbrandt, international regional manager for Africa at Chivas Brothers.

“We’re starting to see some early stage advertising agencies, but it takes some time for them to emerge. Some of the simple challenges are making sure our product flows aren’t disrupted, building a distributional arm that can do basic merchandising, and even knowing whether the billboard we paid for in Nigeria has even been put up. Trying to develop an organisation that can hit some of these very basic challenges is where business begins in Africa.”

Although Africa’s potential won’t be mentioned in the same breath as that of Asia, Russia or Eastern Europe any time soon, the work of the big drinks companies to develop the continent’s consumption habits now will have an impact on how the markets there shape up over the next 20 years or more.