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Drinks giant Diageo hopes to sell vodka to new emerging markets

DRINKS giant Diageo is hoping to replicate its success with whisky by taking vodka into emerging markets and persuading consumers to upgrade to more expensive brands.

The move could be good news for Scotland as 22% of Diageo's output of Smirnoff vodka, 50 million litres a year, is distilled at Cameronbridge in Fife and and one-quarter of its vodka is packaged at the adjacent bottling plant.

Diageo has taken whisky brands such as Johnnie Walker and Buchanan's into new territory, notably in Asia.

It is considering expanding its leading vodka brands Smirnoff, Ketel One and Ciroc outside their core developed markets.

Around 25% of the output of these three brands is packaged in Leven in Fife. Last year this amounted to 7.6 million nine-litre cases.

Ed Pilkington, global category director for vodka, rum and gin at Diageo said: "It (vodka) has not been as broad a geographic category as Scotch so there is an opportunity there."

He added: "We think it will go more global as a category."

Diageo has its eyes on markets such as Argentina, South Korea and Nigeria.

It has also taken tentative steps into the Chinese market.

Currently vodka accounts for 12% of Diageo's sales.

What makes it particularly alluring for Diageo is that the profit margin on vodka is higher than other drinks, with none of the expensive ageing that products such as whisky require.

Mr Pilkington said: "This is an attractive business because you can make vodka today and sell it tomorrow."

In all, Diageo sold 34.1 million nine-litre cases of vodka last year.

Its biggest market is the United States, where it sold 17.5 million cases of vodka last year.

Diageo generally avoids the core vodka drinking former Soviet states.

Smirnoff suffered from falling sales in 2010 and 2011 even as the market grew.

But it bounced back with a 6% sales gain last year as marketing was increased.

The brand also expanded into new flavours such as "whipped cream" and "fluffed marshmallow" to appeal to the sweet American palate.

Diageo is encouraging trading up to the likes of Ketel One and Ciroc. To this end it signed a deal with rapper Sean Combs, initially on a 50/50 profit split, to promote Ciroc in the US.

"We are not touching price points that Scotch touches yet, but who knows? There are opportunities going forward," said Mr Pilkington.

In 2008, Diageo paid $900 million (£600m) to form a joint venture with Ketel One's Dutch founders, the Nolet Group.

Peter Fairbrother, Diageo's global white spirits portfolio director said it would consider a full buyout. He said: "If they did decide they (Nolet) wanted to sell, we'd be interested in looking at it."

Last month Diageo bought a majority stake in Indian-owned United Spirits, parent of Whyte & Mackay.

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