Diageo Plc. (DEO) recently announced that it has bought Cabin Fever Maple Flavored Whiskey, a move that will allow the company to tap the growing markets of flavored whiskey and craft distilling. Cabin Fever Whiskey was introduced in the U.S. in 2007.
Diageo plans to start selling Cabin Fever Whiskey this fall. The company already owns leading brands like Johnnie Walker, J&B and Smirnoff. The Cabin Fever Maple Flavored Whiskey acquisition adds a new name to Diageo’s Catalyst Division, which is known for exclusive high potential brands.
The retail giant is on an expansion spree to boost its spirits category, and has announced a ?1 billion ($1.25 billion) investment plan in Scotch whiskey production. As a part of the investment plan, Diageo plans to build a major new malt distillery and also expand its existing ones. New warehouses are also scheduled to come up to store the extra amount of spirit that will be brewed as a part of the expansion plan.
The expansion was announced on the heels of the company’s plan to acquire the leading premium cacha?a brand, Ypi?ca, from Ypi?ca Agroindustrial Limitada in Brazil. The ?300 million (approximately $375.0 million) transaction is a part of Diageo’s strategy to expand in the fast-growing economies.
Diageo started its new restructuring program in fiscal 2011. Under the program, Diageo is reviewing its operating model with an objective to improve the effectiveness and productivity of the group’s operations and deploy resources closer to the market as well as in the geographical regions where the potential for growth is highest. We are optimistic regarding the effectiveness of the model once it becomes operational by June 2013.
However, the recent economic downturn has adversely affected Diageo’s performance by compelling customers, who prefer lower-priced brands over premium ones, to reduce discretionary spending. The company’s markets in Nigeria and Europe recorded weak performances during the first half of fiscal 2012, primarily due to this change in spending pattern. A sluggish recovery in these markets is expected to negatively impact the demand for Diageo’s premium offerings and in turn affect its top-line growth.
Diageo closely competes with Molson Coors Brewing Company (TAP) and SABMiller Plc (SBMRY). Currently, we have a long-term Neutral recommendation on Diageo, which carries a Zacks #3 Rank (short-term Hold rating).
To read this article on Zacks.com click here.
Zacks Investment Research
