food and drink

‘We're on the Hunt:' Diageo's CEO Says Company Wants to Buy More Premium Brands

Courtesy of Diageo
  • Drinks manufacturer Diageo announced it would buy Aviation American Gin, part-owned by Ryan Reynolds, in August.
  • Diageo's CEO Ivan Menezes told CNBC said it had seen people drinking "better, not more."
  • In China, business is "pretty much back to normal," Menezes added.

Drinks maker Diageo is keen to buy further premium brands after acquiring spirits firms in the U.S. and U.K. in recent months.

In August, the company announced it would buy Aviation American Gin, a brand part-owned by actor Ryan Reynolds, in a deal valued at around $610 million. In October it agreed to buy the U.K.'s Chase Distillery, which produces gin and vodka from British potatoes and apples, for an undisclosed sum.  

The acquisition strategy is driven by people drinking "better, not more," Menezes told CNBC's "Squawk Box Europe," a trend that has held steady throughout the coronavirus pandemic. 

"The premiumization trend has continued through this period and I'd say that's the biggest source of value creation for a company like Diageo, people drinking better and trading up to a Talisker single malt or a Johnnie Walker Blue (whisky) in China," Menezes said on Monday.

"We want to keep adding to the growth and margin profile of the business by acquiring fast growing brands with high margins at the premium end of the market … and we're on the hunt for more. But it is about finding quality brands that we can see growing well over a decade," he added.

In 2017, Diageo bought Casamigos tequila — a brand co-founded by George Clooney — for as much as $1 billion, which Menezes said was doing "extraordinarily well."

In a September trading statement Menezes said recovery from the pandemic "varies by market," and that the business was seeing "sequential improvement" in organic net sales and operating profit for the first half of its 2021 fiscal year, compared to the second half of 2020.

"I remain very confident that the fundamentals of our business remain strong. If you look at China right now where things are pretty much back to normal, you will see our businesses are performing well there, people are socializing outside the home again," Menezes told CNBC.

Monday also saw the launch of the company's sustainability goals for the next ten years, including achieving zero carbon emissions by 2030 in its direct operations, and using 30% less water to produce its drinks. "To the investor in Diageo I would say we are absolutely confident that this long term focus on sustainability delivers good business and delivers good business returns," Menezes told CNBC.

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