DIAGEO, THE maker of Guinness, Smirnoff vodka and Johnnie Walker Scotch whisky, will pay 900 million reais ($453 million) in cash for Brazilian cachaca brand Ypioca as it expands in faster-growing emerging markets.
Diageo, the world’s biggest distiller, will buy the brand and some production assets from Ypioca Agroindustrial Limitada, the London-based company said.
The acquisition will more than double the Brazilian business for Diageo, whose current cachaca offering comprises only the small Nega Fulo brand.
Ypioca is popular among Brazil’s burgeoning middle class which is expected to make up 57 per cent of the population by 2014, according to Diageo Latin America and Caribbean president Randy Millian.
It has an 8 per cent share across all cachaca brands nationwide, but is the leader in the premium category with 62 per cent market share.
The move will also further Diageo’s push into markets outside its main regions of Europe and US, where weak economic conditions are restricting growth.
The distiller plans to expand sales from emerging markets to at least 50 per cent of total revenue. It bought Turkey’s Mey Icki raki brand for about $2.1 billion last year and got regulatory approval in March to buy a Chinese white-spirits maker, ShuiJingFang.
“This looks like a pretty smart acquisition,” Melissa Earlam, an analyst at UBS AG in London, said today.
As the main ingredient in a caipirinha cocktail, cachaca is the most popular liquor in Brazil, Diageo said. Ypioca, the second-largest cachaca brand by value and third-largest by volume, had annual sales of about 177 million reais in 2011. It is made from fermented sugar cane juice and is mixed with lime, sugar and ice to make a caipirinha.
“Brazil is an attractive, fast-growing market for Diageo with favourable demographics and increasing disposable incomes,” Diageo chief executive officer Paul Walsh said in the statement. The purchase will boost Diageo’s revenue growth, he said. Diageo said it will benefit from Ypioca’s distribution strength in the northeast of Brazil, as the distiller is traditionally stronger in the south of the country. – (Bloomberg)
