DRINKS INDUSTRY PLAYS POLITICAL RISK

(TheDrinksBusiness) - As the global spirits industry has consolidated over the past decade, the opportunities for giant takeovers such as the dismemberments of Allied Domecq and Seagram have diminished.

Today, companies such as Diageo and Pernod Ricard are seeking niche acquisitions in strategic countries that give them not only a significant local brand but also an enhanced route to market for their global products.

But while such deals have attractive profit potential, they do come with political risks attached. Take Diageo’s $2.1 billion purchase of Mey Içki in Turkey just two years ago.

Not only did Diageo buy the country’s biggest producer of raki, the national drink, which has an 82% market share and an 80% gross margin, but by using Mey Içki’s network Diageo has increased its share of the Turkish market for Scotch whisky from 20% before the takeover to more than 50% today. That sort of rapid growth puts smiles on the faces of shareholders and analysts, especially when it comes with enormous growth potential.

At just 1.5 litres a head, the Turkish population has one of the lowest alcohol consumption rates in Europe and more than 80% of the 80m-plus Turks do not drink at all. So as the country increases its international outlook with an eventual aim of joining the European Union, the opportunities for profitable sales expansion, especially to the burgeoning tourism sector, are significant.