Diageo could call last drinks over tax bias
The head of alcohol giant Diageo's Asia-Pacific division has warned the company could cease investing in Australia unless the federal government eases the tax burden on spirits.
Gilbert Ghostine, president of Diageo Asia-Pacific, said while Australia was the company's second-biggest market in the region, it was growing much slower than emerging markets such as China and India.
"Our growth here is in low single-digits, but we're the leading player in spirits and ready-to-drink pre-mixed spirits, and we have two major production facilities in Australia, including Bundaberg . . . but China, Southeast Asia and India are our biggest areas for growth," he said.
Mr Ghostine, visiting Australia to celebrate the 125th anniversary of the Bundaberg rum distillery in Queensland, said the company was considering shifting capital away from Australia.
Gilbert Ghostine prepares to savour a 125th anniversary edition of Bundaberg rum.
"The biggest challenge here is around taxation -- it's a big cloud holding back the Australian market for us . . . if I have a choice to invest I'd rather do it in India and China than Australia, because the tax regime here unfairly hits spirits," he said.
While a bottle of Diageo's Smirnoff vodka sold for an average of $35 in Australia, lower taxes meant it was just $21 in Britain and $17 in the US.
"The tax component that Australian consumers pay is over 60 per cent of the price of the bottle, which is very unfair for consumers and limits the investment we can justify making here," he said. Diageo is one of a number of alcohol manufacturers including Jacobs Creek parent Pernod Ricard who are pushing for the government to tax beverages solely on their alcohol content -- a move that would cut the price of spirits, pre-mixed "alcopops" and premium wines while increasing the price of cask wine.
Previous calls for so-called volumetric taxation have been rejected on the grounds that they could encourage binge drinking of spirits, favoured top-shelf wine drinkers and would wipe out the domestic commercial wine industry.
However, Mr Ghostine said Diageo remained committed to its existing Australian business and was exploring ways to expand Bundaberg's reach in export markets. The company was planning to push new premium Bundaberg products such as its Master Distillers Collection to airport duty-free stores and high-end cocktail bars internationally.
Diageo was also looking to expand its premium product portfolio in Australia, with the recently launched Bulleit Bourbon, Ketel One vodka and Zacapa rum all growing strongly.
"We see the premiumisation trend continuing -- all over the world consumers are more interested in brands with history, craftsmanship and provenance . . . in Australia our super-premium brands are underweight compared to the rest of the world," Mr Ghostine said.
Source: The Australian, 28 November 2013
