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Why You Should Let Diageo plc Look After Your Money

Diageo

Okay, I confess, I’m not a big beer drinker. I know that’s a bit sacrilegious as far as British culture is concerned, but it’s the truth. That said, I have had my moments of walking home through Central London in the summer time and wanting nothing more than to down an ice-cold lager. The problem with me though is that I’m well satisfied after a pint or two. Basically, I’m of very little interest to a company like Diageo (LSE: DGE) — one of the world’s largest producer of spirits, and a big player in the beer and wine business. Instead, the company has its heart set on Africans. Not surprising really. The market in Africa is frankly enormous.

According to the WSJ, Africa already accounts for around 40 per cent of Diageo’s annual beer sales. That’s about $3.7 billion in beer revenue coming from Nigeria and other parts of West Africa. And here’s another statistic that’ll knock your socks off — the African Development Bank says there will be 65 million more legal drinkers in Africa in 10 years’ time.

The Problem

Many African countries are an the grip of a deep economic malaise. The recent outbreak of Ebola in West Africa is just one symptom of a continent that is deeply scarred by social and financial issues. Any examination of the Central African Republic in recent years will also reveal deep hatred and violence that’s hurt one country that can least afford it. Without being crass about it, one side effect is that Africans are drinking less expensive alcohol (like Guinness) in favour of cheaper beer, or spirits that pack more punch. It’s the same story in Eastern Europe. Hard times can manifest themselves in all sorts of different ways. This is one of them.

The Solution

I don’t really believe that beverage companies can change the world for the better. I do, however, believe that alcohol is an important social lubricant, and, pitched the right way, can benefit consumers and society. Diageo has seen the need for a ‘clean’ approach in Africa and is throwing money (more than 1 billion pounds) at it. The company is looking to engage with Africans through sport and by encouraging the younger generation with the slogan, “Raise Your Game”. It’s one way companies like Diageo can market their products responsibly.

“Here’s to alcohol: the cause of, and solution to, all of life’s problems.” (Homer Simpson)

I’m not going to kid myself and say Diageo is going to clean up Africa’s problems. What has to be said though is that the beer/alcohol market in Africa is now hotting and just a few companies are trying to get as large a slice of the pie as they can. Diageo’s campaign seems clear and transparent. It’s also consistent with its other socially-conscious campaigns around the world including a new road safety programme in India.

Cheers!

This series is about companies that will look after you. In that respect, alcoholic beverage companies are indeed a relatively safe play in wobbly markets. In addition, Diageo is being aggressive with one of its most important markets, and it’s doing it the right way. So if you want to help fix the problems in Africa you could donate to charity, or sponsor a child, or be a volunteer for a reputable organisation. There’s so much that can be done! If you would like to make what I understand to be a sensible investment decision, have a little look at Diageo.

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David Taylor has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.