Diageo export success tough to follow for UK firms

By Dan Colombini

- Last updated on GMT

Related tags Uk food Europe Firm International trade

UK food and drink firms may struggle to achieve similar emerging export success compared with Diageo
UK food and drink firms may struggle to achieve similar emerging export success compared with Diageo
Smirnoff manufacturer Diageo’s recent export success will be a tough act to follow for UK firms, according to city analysts, after the drinks giant revealed that 40% of its sales now come from emerging markets.

Experts said that, despite some UK food and drink firms adopting similar business models to the Johnny Walker whisky maker, differing consumer tastes around the world made similar growth difficult to achieve.

Martin Deboo, an analyst at Investec, told FoodManufacture.co.uk: “To some extent a few UK businesses are already following similar strategies. What Diageo is doing is not that different to firms such as Unilever and, on a smaller scale, the food manufacturing casing firm, Devro.”

“But Scotch whisky is a particularly aspirational product in emerging markets and around the world. Haggis, on the other hand, does not sell in China as far as I’m aware​.”

Global food tastes

Julian Wild, food group director at law firm Rollits, agreed. He told FoodManufacture.co.uk that due to differing global food tastes, UK firms may struggle to replicate Diageo’s success.

He said: “The problem is, food tastes differ around the world so there is limited potential for continuing to grow exports of British food on the same level as Diageo.

“I think there are niche opportunities for products with unique appeal. But as tastes vary from country to country, UK food firms are not in the same position as drinks firms to export their products worldwide​.”

Exports to emerging markets have been highlighted as a strong engine for growth within the UK food and drink industry. Last month Caroline Spelman secretary of state for the Department for Environment, Food and Rural Affairs (DEFRA), said she planned to ask the Foreign Office for help in promoting trade overseas.

Could not compete

However, Wild, a former member of the council of Food from Britain, a group dedicated to promoting exports from the UK, which was abandoned under the Labour government, warned that many firms could not compete with the strength of Diageo’s brands overseas.

Diageo’s brands are very recognisable and strong​. You are talking about brands that sell all over the world. This is often not the case with a lot of UK food businesses,” ​he said.

“There have been some businesses in the past that have had success but these tend to be branded, with strong UK appeal​.”

Diageo’s latest financial results for the period ending December 31 revealed that sales to emerging markets had grown by 18%.

The firm’s success overseas offset falling sales in the UK, which were hit by its decision to cut promotional activity and hold firm on prices.

Growth was also flat in Europe as a result of the firm’s exposure to a number of struggling economies in the Eurozone. However, the figures were supported by double-digit growth in France and Germany.

Overall, the firm posted organic net sales growth of 7%, driven by price increases and price mix benefits.

Chief executive, Paul Walsh said: “Diageo has delivered a solid and well balanced first half performance with 9% operating profit growth and 60 basis points of operating margin expansion.

“This is the result of the investments we have made to build our brands, deepen our routes to market in the faster growing markets of the world, enhance our leadership in US spirits and create an integrated organisation in western Europe. In an uncertain economic environment we have again demonstrated the benefits of our geographic diversity and brand range​.”

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