Whisky giant Diageo cheers stronger sales as 'savvy' drinkers splash out on premium tipples
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The world’s largest spirits maker, which has almost 30 malt distilleries in Scotland and owns global brands such as Guinness stout, Smirnoff vodka and Captain Morgan rum, said its sales grew 9.4 per cent in its first half, measured on an organic year-on-year basis, to £9.4 billion. Its organic operating profit grew by 9.7 per cent to £3.2bn over the period, surpassing analysts’ expectations.
The company said that sales growth in Europe was driven by increased prices of its spirits and rolling out more premium brands over the year. Sales of Guinness across the region jumped by a fifth, and sales of premium Scotch whisky brand Johnnie Walker surged by nearly a quarter. Diageo, which employs some 3,500 people in Scotland and also owns Bell’s, has been strengthening its portfolio through various acquisitions and disposals.
Ewan Andrew, the company’s Scots-born president for supply chain and procurement, said “premiumisation” had played a large part in the recent growth. “Savvy consumers are working hard for every pound or dollar,” he said. “They are looking to get out and socialise and spend time with friends and family. There is also strong demand for cocktails, partly for nostalgic reasons and the ‘Sex and the City factor’. More than half of pubs now stock cocktails and the standards are rising. People are opting for better quality drinks.”
He said it was also increasingly important for premium brands to “play in the low alcohol space”. Andrew also highlighted the contribution from the Johnnie Walker Experience on Edinburgh’s Princes Street, noting that it was having a “halo effect” on the west end of the city.
“More than 30 per cent of the people coming in say they have never tried whisky before and that they have enjoyed the experience,” he added. “It has been a fantastic investment for us. It feels like that end of Princes Street and the surrounding area is really coming up.”
Diageo chief executive Ivan Menezes told investors: “As we look to the second half of [our financial year], whilst the operating environment remains challenging, I remain confident in the resilience of our business and our ability to navigate volatility. We believe we are well-positioned to deliver our medium-term guidance of consistent organic net sales growth in the range of 5 per cent to 7 per cent.”
John Moore, senior investment manager at wealth firm RBC Brewin Dolphin, noted: “Diageo has delivered good sales and profit growth, despite inflation taking its toll on margins. The company is a big overseas earner, with the strength of the US dollar a particular tailwind, and many of its markets are rebounding as they normalise following Covid-related disruption.
“Diageo has been smart about managing, developing and evolving its brands, with their ‘premiumisation’ a major selling point and a way of insulating them from massively competitive markets, such as gin. The drinks group is a strong and steady business.”