What do you do when sales decline? If you’re Diageo, you move to Africa.
Diageo, the maker of Smirnoff vodka and Johnnie Walker whisky, has been a global liquor powerhouse for years. However, the company’s growth has been slowing in its traditional markets of North America, Asia-Pacific, Latin America and the Caribbean. In other words, organic growth (business as usual) is stagnant.
In this situation, Africa offers Diageo a huge potentially untapped market. It’s no secret that Africa is on the rise. According to IMF estimates, Sub-Saharan Africa and Nigeria are expected to grow between 4-5% in 2015 and 2016. No wonder that Diageo is pursuing an aggressive external growth strategy in the region.
The company recently made a $208 million bid to increase its stake in Guinness Nigeria, which houses Diageo’s beer brands. Diageo also terminated its partnership with Heineken in South Africa in July. Both of these moves would give Diageo more control over the business in its expansion in Africa.
Diageo is also pursuing growth in the spirits trade by building its own brands specifically for the African market. The company recognizes the need to “move down market;” rather than push expensive brands. In Africa, it is focused on selling to the masses, and sales have risen 6%.
Even though Africa presents a huge opportunity, there are challenges with expanding to a new market. Diageo is not alone in eyeing Africa – it faces competition from other companies like SABMiller which is pushing for higher beer consumption on that continent. And in some markets Diageo’s spirits business and beer business compete against each other.
When faced with stalled growth, meeting demand to a new market can be a life-saver for your business. Diageo has recognized the need to go where demand is on the rise.
However different your product, you may be in a similar position to Diageo – you see the writing on the wall and your once profitable markets are shrinking or stagnant. Don’t despair. Now is the time to look to future demand. Which markets are growing? Where are new customers to be found?
Once you’ve identified a market in which to expand, think about how you’ll get there? You can use M&A to expand rapidly and effectively in a new market and ensure your business continues to thrive.