Premium only way forward for Diageo

05 September, 2008

Beer expansion possible but only at the right price

Diageo has said it will only look to expand its beer portfolio if the right premium opportunity comes along.

Speculation has been mounting that the Guinness owner is on the lookout for extra weight in beer after the Heineken-Carlsbe rg acquisition of Scottish & Newcastle and Inbev's purchase of Anheuser-Busch.

Diageo's recent admission that it had held talks about a possible buy-in to British-based beer brand Cobra have served to fuel the speculation.

Though the Cobra deal collapsed, it's been suggested that Diageo could seek closer ties with Heineken, with which it has working relationships in several overseas markets, most notably South Africa.

Chief executive Paul Walsh said: "We want scale but at the right price points. To have more liquid going through the business, if it commands the wrong price point with consumers, is probably not for us."

He added: "We have a very good relationship with Heineken and we see the world pretty similarly," but said that moving closer to any other drinks company would only be on the gounds that it made "good economic sense and good marketing sense for the brands."

Guinness, Smirnoff, Baileys and Blossom Hill provided the main UK growth for Diageo in the year to June 30 - but the

company has warned of tougher times ahead in its global business.

The group posted a 9% increase in operating profit for the year at 2.23 billion on a 7% increase in net sales.

Diageo Europe, which includes Diageo GB, reported volume organic growth of 2% with net sales and operating profit each up 3%.

Benet Slay, managing director of Diageo GB, said: "This is proof of the strength and demand for our brands in the face of tough trading conditions, including the current climate of economic uncertainty, lack lustre summer weather and increasing regulatory challenges.

"The strong performance was driven primarily by Smirnoff, Baileys and Blossom Hill.

"Guinness also carried through its solid performance from the first half of the year, delivering net sales growth for the full year."

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