DOWN THE HATCH

Turkey 2013 | ECONOMY | GUEST SPEAKER

Paul Walsh, Former CEO of Diageo, on the firm's acquisition of Mey İçki, the Turkish alcoholic beverage sector, and the market for rakı in Turkey and abroad.

Paul Walsh
BIOGRAPHY
Paul Walsh is the Former CEO of Diageo, having stepped down in June 2013 and going on to become Chairman of Compass Group. He joined GrandMet’s brewing division in 1982 and became Finance Director in 1986. He held financial and commercial positions with InterContinental Hotels and in the GrandMet food business, becoming CEO of The Pillsbury Company in 1992. He was appointed to the GrandMet Board in October 1995 and to the Diageo Board in December 1997. He is a non-executive director of FedEx Corporation, Unilever, and Avanti Communications. He was previously a non-Executive Director of Centrica, stepping down in May 2009. He is a member of the board of trustees of The Prince of Wales International Business Leaders Forum. He is also immediate past-chairman of the Scotch Whisky Association, a role he held for three years, and a former Chairman of the Court of Governors of Henley Management College. He has also been appointed Business Ambassador for the food and drink industries by the UK Department for Business, Innovation, and Skills.

Turkey's economic performance over the last decade has been impressive. In 2001, Turkey rapidly reorganized its economy, completed structural reforms, improved its legal and judicial infrastructure, and geared up for unprecedented growth. This has resulted in Turkey achieving one of the highest growth rates in the world over the past 10 years. This change is all the more impressive as a tripling of Turkey's GDP was achieved between 2002 and 2011, a period of severe global economic crisis.

Diageo is the world's leading premium drinks business with an outstanding collection of brands across spirits, beer, and wine, and we have taken a keen interest in developments in the Turkish economy and business environment for many years. Building our business in new high growth markets has played an important role in transforming Diageo over the last three to four years, and these markets now represent over 40% of our sales. In August 2011, we acquired Mey İçki, Turkey's leading local spirits producer and distributor. Mey İçki provides Diageo with a great opportunity to enhance our presence in this new high-growth market.

Turkey's growth story is remarkable. Over the past decade it has become one of the fastest-growing and most robust economies in Europe. Today, the country is the 16th biggest economy in the world, driven by both increasing FDI and consumer demand. Turkey is also undergoing significant social change and the Turkish economy is benefitting from changing consumer trends, including the emergence of a vibrant middle class. The population is becoming more urbanized and disposable incomes are rising, with around 40% of household incomes now above $15,000, rising to 60% by 2014. Around 60% of the population is currently under 34 years of age, the population is projected to increase to 94 million by 2050, and the growing urban population is increasingly brand-conscious. These trends lend themselves to Diageo's expertise in premiumization across categories and in innovation.

“Within this booming economy, the consumer goods sector has also achieved strong growth."

Within this booming economy, the consumer goods sector has also achieved strong growth. This is evident when looking at some basic consumer data: between 2002 and 2012, the number of mobile phone owners increased from 23 million to 67 million, and credit card ownership rose from 16 million to 53 million. The number of internet users rose from 4 million to 50 million in the same period and the number of airline passengers increased from 33 million in 2002 to 132 million by November 2012.

In acquiring Mey İçki, we knew that the transaction would not only create growth in international spirits, but that it would support growth through increased premiumization of the rakı market, both in the local Turkish market and overseas. We could also see the potential for the spirit in export markets.

Since the time of the acquisition, Turkey has delivered a very strong performance for Diageo. We have seen good growth in the gin category and the more premium Yeni Rakı, coupled with excellent growth of Johnnie Walker and Smirnoff.

Our analysis indicates that Turkey's economic growth of the last 10 years is only the beginning. It is widely acknowledged that the global economy of the 21st century will be very different to that of the 20th century. An analysis by John Hawksworth, Chief Economist of PwC, predicts that by 2050, the Turkish economy will be one of the largest economies in Europe. The Turkish government's ambitious Vision 2023 target is for the country to become one of the 10 biggest economies in the world and the country's consumer base will, no doubt, be one of the driving forces of future growth. Demographic data indicates that the Turkish consumer base will grow both in terms of people and purchasing power.

With the acquisition of Mey İçki, we not only acquired a successful company, but also invested in one of the world's new high growth markets of the 21st century. We look forward to working in partnership with the government to support further economic growth, building on the exceptional developments of the past decade, which have left the country well positioned for the future.