How a new market is producing a wave of innovation in an old industry
ROALD DAHL, a children’s author, wrote the best study of innovation in the food-and-drink industry. In “Charlie and the Chocolate Factory”, he describes how old products can be delivered in new ways (eg, by teleporting chocolate bars into people’s homes via television). And he describes how a gifted innovator can produce entirely new products, such as cavity-filling caramels and everlasting gobstoppers. Dahl grasped that a company is most likely to innovate if the boss (Willy Wonka) and his minions (the Oompa-Loompas) are obsessed with their products. All these insights apply to adult beverages, too.
The drinks business is one of the world’s most conservative. Wine drinkers value ancient vintages. Regulars ask the barman for “the usual”. Brewers tussle mightily to increase their market share by a single percentage point. But none of this is true in emerging markets. There, drinkers have yet to become set in their ways, and innovation is rife.
The centre devises new ideas for Africa, the world’s most exciting market for stiff drinks. Diageo’s home markets are saturated—12 British pubs close each week. Africa, by contrast, is growing fast. Its population is soaring at 2.3% a year. (Asia’s is growing at 1.1%; the world’s at 1.2%.). Africa’s median age is a youthful 19.7. Most importantly, perhaps 60% of African drinkers slake their thirst with homebrew rather than branded booze, so there is plenty of room to upgrade. Paul Walsh, Diageo’s boss, wants the company’s sales in emerging markets to increase from about 40% of the total today to 50% in 2015. Africa will be crucial.
Yet it is a tough market. Currencies are volatile. Roads are bumpy. Power and water come fitfully. Officials often demand bribes. (Schumpeter’s editor once rode a Guinness truck in Cameroon that was stopped at roadblocks 47 times in 500km.) Some Africans find Western drinks bland. Diageo also faces fierce competition from other global giants such as Anheuser-Busch InBev and SABMiller (a London-based firm with roots in South Africa).
So it must innovate. Diageo has spent more than £1 billion ($1.6 billion) in the past five years on improving its factories in Africa and crafting new products. It has put beer into cans rather than bottles to reduce breakages, and decanted spirits into small bottles to tempt the cash-strapped. It has tapped the local passion for football by sponsoring matches, including one between Argentina and Nigeria that attracted a television audience of 42m. It has also joined forces with Heineken, a rival, to attack an even bigger rival, SABMiller, in its South African castle.
And it has been straining to create new products. One observer estimates that innovation in the African drinks market is 80% about new products and only 20% about stretching old ones; in the rich world it is the other way round. So Diageo has created Snapp, a tipple for women in their 20s (a group brewers are desperate to woo, since they don’t drink as much as young men). The company has devoted as much energy to changing the image of alcohol as it has to creating Snapp’s apple flavour. Since many Africans associate brown beer bottles with prostitutes, Snapp comes in clear bottles decorated with leaves. The firm has also spent heavily on ads promoting women’s empowerment.
Another drink, Orijin, is designed for the emerging middle class: Africans with steady jobs and a bit of spare cash. Diageo noticed that a new drink—wines mixed with spirits and flavoured with herbs and spices—had taken off in the Caribbean. It also noticed that middle-class Africans had a penchant for products that project pride in African traditions. It put the two trends together and invented its own “traditional” African drink.
Diageo’s most successful African product, Senator Keg, was introduced six years ago and aimed at the impecunious. The Kenyan government was worried that cheap hooch was making people seriously ill, so it offered to excuse Diageo from excise duty if it produced a cut-price beer. Diageo found creative ways to trim the price, by using local barley and sorghum, by putting the beer in big kegs rather than costly bottles and by inventing a cheap hand-pump to serve it. Diageo outcompeted local distillers by painting bars in bright colours and providing them with flat-screen televisions. The company expects East African drinkers to splash out more than £100m on Senator this year.
The Wonkas of getting wasted
Diageo will one day have to ask whether it makes sense to house its African innovation centre in Bishop’s Stortford. The staff boast that they are always on the plane over the Sahara, but it is hard to understand African drinking habits when you do most of your own drinking in cold, damp Hertfordshire. Still, there will be plenty of work for Diageo’s equivalent of the Oompa-Loompas in the coming years. The company’s rivals are all furiously innovating, too. SABMiller produces cassava beer for the bottom of the pyramid and fruit-flavoured drinks for women. And the African market is changing as fast as it is growing. Tomorrow’s Willy Wonkas will not be wazungu (foreigners); they will be African.