Diageo PLC (LSE:DGE) is well positioned to capitalise on the global trend towards Scotch whisky consuption being driven by Latin America and India, Barclays data suggests.
Whisky is the main driver for the surge in spirits consumption in India, which is the largest growth market for spirits globally.
At the moment, domestic brands comprise the vast majority of whisky consumption in India, due to a prohibitive 150% import tax on spirits.
However, Barclays highlights the potential for tariff liberalisation on Scotch brands in the country.
This would open up massive revenue potential for Diageo, given the group’s weighting towards Scotch in its whisky portfolio.
Two blended Scotch brands, Johnnie Walker and Buchanan’s, make up nearly 90% of Diageo’s whisky portfolio.
As for malt-based Scotch, Lagavulin and Oban make up 3.6% and 3.8% of Diageo’s portfolio respectively.
Indicative of Diageo’s prominence in the Scotch sector, data shows that of the 22mln barrels of Scotch currently ageing, Diageo owns 10mln.
Across Latin America, Scotch already comprises 24% of total spirits sales, with trends pointing towards premium and sub-premium brands.
Although analysts reckon this could act as a long-term tailwind, Diageo and competitor Pernod Ricard are well-placed to benefit from near-term, volume-driven growth.
Commenting on the global outlook, Barclays said: “With its quality, history and authenticity credentials, we believe Scotch will be one of the most important growth categories in spirits, particularly in emerging markets.
“This could be boosted if India and the UK agree a free trade deal.”