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Diageo Seeks Chinese Growth as Smoking Bans Hurt European Sales

Diageo Plc, the world’s largest liquor maker, will double marketing spending this year in China, whose economy is the world’s fastest-growing, and start selling Smirnoff vodka in the Asian country as European sales stagnate.

The company is testing Guinness in Chinese bars as it considers introducing the stout in more cities, Finance Director Nick Rose said today in an interview. Diageo also will sell Bailey’s Irish Cream, made outside Dublin, in China, Rose said.

Economic growth already has vaulted China past the U.S. to become the world’s largest market for beer, prompting companies such as Anheuser-Busch Cos. and Heineken NV to buy brewers there. Chinese urban per-capita disposable incomes surged more than 40 percent in the past five years, spawning a growing generation of young, affluent drinkers with a penchant for Western lifestyles.

China ``in the long term is very attractive,’’ Chief Executive Paul Walsh, 49, said in an interview, adding that the London-based company is not yet profitable in that market.

Diageo plans to spend about 20 million pounds ($38 million) on marketing its drinks in China in the year through June, more than it predicted and twice as much as last year, the finance director said. The company said today it cut investment in marketing worldwide by 6 percent in the fiscal first half.

Golf Sponsorship

Johnnie Walker whiskey is Diageo’s most established brand in China, with volumes rising 67 percent in the six months through December, according to Rose. The brand will sponsor the Johnnie Walker Classic golf tournament in Beijing in April, spokeswoman Isabelle Thomas said.

China imported more scotch in the first six months of 2004 than in all of 2003, according to the Scotch Whisky Association in Edinburgh, Scotland.

Still, Diageo’s share of the Chinese vodka market stands at 27 percent, compared to 34 percent for Absolut vodka, according to market research firm Euromonitor. The company now operates in the spirits market in a joint venture that it has shared with a unit of LVMH Moet Hennessy Louis Vuitton SA, the maker of Hennessy cognac, for the last 15 years.

Absolut, owned by Sweden’s Vin & Spirit AB, introduced its most aggressive advertising and marketing campaign in China to date to mark the start of the Chinese New Year, the Wall Street Journal reported this week. The campaign, featuring the slogan ``Absolut New Year,’’ is based on the Chinese character ``fu,’’ which Absolut is printing upside down to mean ``fortune arriving’’ in magazine advertisements and on billboards during the celebrations, the newspaper said.


``You could actually accuse Diageo of being slow in terms of deciding what it wants to do in China,’’ Rose said. ``We’ve been risk-averse, but that’s changing now in terms of what we want.’’

Diageo’s plans to increase its presence in China come after the company said today that revenue in Europe dropped 1 percent in its fiscal first half. Drinks volumes dropped 1 percent in Ireland, home of Guinness since 1759, after a government ban on smoking in pubs last year led more people to drink beer at home instead of in bars.

The company also is suffering from weaker economic expansion in Europe, where the economy of the dozen countries sharing the euro ended 2004 with growth that was half the pace of the U.S. Diageo also will have to tackle the effects of smoking bans implemented in Norway and Italy this year.

Bloomberg - 18 February 2005
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