Diageo India Champion of Innovation, Inclusion, and Sustainability

It’s never enough to simply create an alcoholic beverage and then sit back and let the consumers choose your brand. To respond to evolving consumer needs and stay relevant requires hard work and agility. To take a cue from what Diageo India does, it is continuous innovation that helps its brands remain at the forefront. Along with this comes the spirit of inclusion and diversity, pioneering grain to glass sustainability and promoting positive drinking. In this exclusive interview, Hina Nagarajan, Managing Director and CEO, Diageo India, elaborates to Shalini Kumar about not only the mantra that keeps the Diageo banner flying high but also the various strategies the company adopts to always keep consumers in mind while crafting processes, products and growth curves.

Leading a company like Diageo presents numerous challenges. Could you share your reflections on your journey so far in this role and what makes you proud? How did your experience as the Managing Director of Diageo Africa and emerging markets help you in your current role?

I have spent 30 years in consumer businesses, and each market presents unique challenges and opportunities. My time with Diageo Africa, working with 37 vibrant countries across the African continent, helped me understand the industry and its consumer potential. The diverse challenges prepared me to handle various situations and find solutions. I find many similarities between Africa and India—both are strong potential markets with young, vibrant economies, growing consumer aspirations, but also highly regulated and taxed. This experience proved valuable when I took over Diageo India in July 2021. My goal was to put the Indian business on a sustainable, double-digit growth path, focusing on premium and prestige segments. In October 2021, we unveiled a new strategy. 

The task was challenging as it meant tripling our historical growth rate and doubling our premium portfolio growth rate. Together with my leadership team, we made strategic choices to win. And today, I am proud of our achievements—our prestige and the above segment contributed 87.4 percent of net sales in FY24. We became debt-free last year, and our market capitalisation which was around ₹40-45k cr in June-July 2021, now is around ₹80 85k cr. plus. The company returned to dividend distribution after a long hiatus, enabled by the successful turnaround of the company to sustained earnings growth and profitability. In Q2FY24 the Board of Directors approved an interim dividend of ₹4. In addition, the Board recommended a final dividend of ₹5 per share. In FY24, our stand-alone net sales were at ₹10,692 crore, an increase of 10.5% on a rebased basis. The Prestige & Above segment grew by 11.9% and accounted for 87.4% of net sales during the f inancial year ended March 2024. We have significantly enhanced our productivity and efficiency extraction initiatives through the value chain.

Our performance has been holistic, aligning f inancial success with our ‘Diageo in Society Spirit of Progress’ agenda, focusing on three pillars – championing inclusion and diversity, pioneering grain to glass sustainability and promoting positive drinking. We have made significant progress, with ratings as a top-performing company in sustainability and notable improvements in diversity.

How much has India changed as a market and how much has it impacted the overall strategy of your company? What kind of shift are the millions of young and first time drinkers necessitating in your brands’ re-shaping, renovation and innovation strategies?

India is undergoing deep societal change – driven by rising affluence among women and youth. This transformation brings new values of authenticity, individuality and local pride. Women are building a much more inclusive consumption narrative. It used to be a taboo in our industry, but now women are enjoying the category and it’s really creating new opportunities for us. The new consumers are looking for premium brands and experiences, fuelled by the digital revolution. This market really presents a vibrant opportunity for us to innovate, renovate and cater to these new evolving needs. We are responding to these structural shifts, which are pivoted around premiumisation, well-being and also the demand for sustainability. We pride ourselves as one of the best brand builders in the world. Our portfolio includes global brands like Johnnie Walker and local brands like McDowell’s and Royal Challenge. We have introduced new products like Don Julio tequila and the locally crafted Godawan, which has won over 40 international awards including the best single malt at London Spirits competition 2024.

Given that Gen Z is exploring various spirit categories without sticking to a specific one, do you anticipate any part of Diageo’s portfolio becoming irrelevant for these new age consumers? If so, do you have plans to divest those brands?

We have been agile in responding to shifts in consumer choices and behaviour, using a future focused approach to innovation and renovation. The fact that we are winning in the market suggests that our portfolio reshape is right for the market and our brands continue to be loved by consumers. This gives us confidence that we are on the right track. If I just look at Gen Z, this is a generation that is coming with different tastes and preferences, experimenting with lighter whiskies like Royal Challenge American Pride and Johnnie Walker Blonde, as well as white spirits like tequila, vodka and gin. However, we also cater to Gen X and the millennials. This confluence of consumers means our brands remain relevant for different cohorts. Our focus is on building all of them to give consumers a fantastic, high-quality brand choice.

Traditionally, Indian consumers have perceived McDowell’s whisky as a volume based brand. Can Diageo India successfully alter this perception and cultivate a newfound appreciation for McDowell’s Indian single malt as a premium offering?

McDowell’s was the first Indian single malt in the market in the 1990s, but maybe it was ahead of its time back then. When we researched with consumers and presented the concept, they were enthusiastic about bringing it back. McDowell’s whisky is the number one whisky in the world by volume and Mc Dowell’s recent extension into white spirits under the McDowell’s X series brand of gin, vodka, and rum is also receiving positive acceptance.

In view of your current focus on the reshaping of prestige and above brands, are you planning to add some new brands from your international portfolio?

We are constantly watching for trends and have a fantastic portfolio of global brands to bring in when the time is right. Recently, we launched Don Julio in India, offering a full range of profiles. Gin f lavours are gaining traction, and we introduced novel variants of Tanqueray. Baileys is popular, and we added new variants like salted caramel and strawberries and cream. We continue to monitor market trends and bring in new products as needed.

In the recent past, Diageo India has taken many initiatives in different areas like investing in technology, protecting the environment, taking stakes in craft spirits making companies, etc. Will there be more such investments or acquisitions?

We maintain an open approach to evaluating opportunities. As a cash-rich company generating strong cash flows, we are open to investments that fit our strategy. We refer to them as new engines of growth. We have already invested in Nao Spirits and recently in Pistola, which is a premium emerging agave brand in India. Our minority stake in both is beyond just a financial investment. We are committed to building these brands with our R&D, supply chain, f inancial management, legal compliance and route to market infrastructure. We have over the last 3 yrs supported a community of innovators and entrepreneurs outside of our investee companies, who have gained from USL’s extensive knowledge and infrastructure. We are committed to creating world class products highlighting Indian pride, built on the strength of Indian ingredients and provenance. We seek partnerships and alliances that bring both innovative products and solutions to our portfolio and support our environmental, social and governance agenda. We continue to look for AI-based technologies to enhance our processes and capabilities, optimise route maps for our sales force, curb counterfeiting and improve traceability of our products from grain to glass. We will continue to invest in these areas as interesting opportunities arise.

What was the rationale behind trimming your portfolio and now focussing on the value-driven luxury and premium portfolio? Are you confident that other than metros, semi-urban and rural markets are ready to spend more on high-end drinks?

We have been witnessing a premiumisation trend in our category for the last seven or eight years. Looking at the historical growth data from 2017 to 2022, the premium end of Scotches was growing at over 20 percent, mid and upper prestige segments grew strongly, while the lower end saw single digit growth, and the popular segment was flat or declined. This trend accelerated during the pandemic and continues to be robust.With increasing levels of affluence, demand for high quality premium brands – the best of global, increasing pride in local craftsmanship and provenance, experimentation ( cocktails , new brands/ categories), repertoire drinking ( different drinks for different occasions/ motivations) and so on. Consumers today are also looking for unique and customised experiences in every facet of their lives. By 2030, 45 percent of our households will be in the mid to upper income group, totalling 175 million households, comparable to the number of households in Great Britain. Women and youth Diageo Innovation center striving for aspirational experiences also drive the demand for premium spirits. There is one more interesting fact: women have accounted for 64% of the growth in demand for Indian single malts in the last two years, and 40 percent of the growth in white spirits. In the alcohol beverage industry, consumers reduce the number of drinking occasions but stay loyal to their brands rather than downgrade. We believe this premiumisation trend will continue to strengthen. Divesting 32 brands and franchising another 11 allows us to focus on the prestige portfolio, leveraging the premiumisation trend. Our growth has more than doubled the historical rate in the last 3 years, and our premium portfolio is growing in strong double digits. Our premium and above (P&A) portfolio accounted for 87.4 percent of our business last year, demonstrating the positive impact of this strategy.

How do you prioritise and ensure compliance and corporate governance across all the business units?

Our ambition is to be the best-performing, most trusted and respected consumer products company, which requires strong compliance and governance. We have a deeply embedded code of business conduct to help employees understand their responsibilities. New employees undergo training on this code, and annual training and tests are mandatory for all employees, including myself. We have comprehensive policies and procedures, regular training sessions, and monitoring systems. Our robust internal audit process reviews core business processes and controls, identifying areas of non-compliance. Our whistleblower programme, Speak Up Line, is extensively used, allowing employees to report non-compliance issues confidently. We share best practices and resources to promote a unified approach to risk management. Our core value is conducting business the right way from grain to glass, which is why our employees are proud to work with Diageo. Our recent annual engagement survey showed that 94 percent of our employees are proud to work for us, and we have an 89 percent overall engagement score, which is 14 percent above the external benchmarks.

How do you foster inclusion and diversity within Diageo and the broader Indian market? Can you provide examples of your advocacy and contributions in this area?

Inclusion and diversity are central to our purpose of celebrating life every day, everywhere. Our diversity numbers have increased from 7.5 percent in 2017 to 27 percent in 2024, with 50 percent of our executive team being women. We continue to push for more progress with market-leading policies on equal parental leave, crèche benefits, pregnancy loss leave, health insurance benefits for same-sex partners, and guidelines on gender identity and sexual orientation. Externally, we aim for marketing to reflect an inclusive societal perspective. Up to 45 per cent of our talent, from behind the lens to our films, is diverse. We invest in progressive media to support diverse narratives and financially back platforms promoting inclusivity. We are expanding the definition of diversity to include people with disabilities, with more than 50 individuals with disabilities working with us. Our ‘Creative Comeback Programme’ helps female and binary creative talents return to the workforce. Our ‘Learning for Life’ initiative teaches hospitality skill to communities, with over 5,000 people trained, 50 percent of whom are women. In Nashik, we run a micro-enterprise initiative for smallholder women farmers.

As a member of the Board of Governors of the Advertising Standards Council of India (ASCI), what are your responsibilities and how do you ensure ethical practices in the advertising industry? Will there be any relief for liquor brands for communicating responsibly with the end consumers?

Our primary responsibility is to ensure positive and responsible marketing codes across the industry. At Diageo India, we believe in self regulation and follow rigorous international and internal marketing codes. Our marketing code prohibits advertising to consumers below the legal drinking age and any direct advertising of alcohol products. We advocate for drinking better, not more, and run several responsible drinking campaigns. As a member of ASCI and ISWAI, we encourage all member companies to follow responsible advertising codes and promote responsible drinking. Our focus is on compliance with current guidelines, and while we cannot predict future relief, our narrative to authorities emphasises responsible drinking campaigns to address illicit liquor problems and promote moderation.

Give us a sense of how the costs of alcoholic ingredients, packaging materials, transportation, etc. have gone up in the last couple of years and how seriously this cost inflation is affecting the overall health of the industry in general and Diageo India in particular.

The last two to three years have been very inflationary, with significant increases in extra neutral alcohol (ENA) and glass costs. ENA remains inflationary due to the government’s ethanol blending policy, despite our productivity initiatives and forward contracts for grain procurement. Glass costs stabilised in the second half of 2024, with a minor decline helping to mitigate ENA inflation. We expect ENA to remain inflationary, while glass and other packaging materials should stay stable. However, our price regulation means we are not getting enough price increases to offset inflation, thereby shrinking our manufacturing margins. Industry associations like CIABC and ISWAI continue to advocate for free pricing or an inflation linked pricing mechanism with the government. This would help us cope with inflation, maintain healthy margins, and invest in the industry’s future.

What is your outlook for Diageo India and the Indian alcohol beverage industry for the next five years? What do you foresee in terms of potential changes in this sector?

Our outlook is very optimistic. India is one of the fastest growing markets for alcoholic beverages globally, with one of the most optimistic consumer bases. We are the largest market for whisky, and despite short term inflationary challenges, the macroeconomic and demographic developments are favourable in India. By 2027, 15 percent of the world’s legal drinking age population will be in India, and by 2030, India will add 25 per cent of the world’s legal drinking age population, with 100 million new consumers. Our market has low penetration and per capita consumption compared to countries like the US and the UK, providing ample growth opportunities. We remain confident in our strategy and are committed to delivering sustained double-digit top-line growth and value to all our stakeholders. Although price regulation presents challenges, we continue to advocate for pricing mechanisms that reflect inflation and help us maintain healthy margins and future investments. The industry’s growth prospects are positive, and we believe the government recognises the industry’s importance to the state revenue exchequer.