Scotland's biggest whisky producer suffers further sales slide amid global lockdowns
Bosses at drinks giant Diageo, whose vast portfolio includes Johnnie Walker whisky, Guinness stout and Smirnoff vodka, highlighted several areas which have worsened in the past month following widespread lockdowns around the world.
They also put on hold a share buyback scheme aimed at boosting the share price and stopping all non-essential advertising and promotional spending for the company’s brands, which also include Captain Morgan and Baileys.
But the group said it was donating alcohol to make more than eight million bottles of sanitiser for frontline healthcare workers around the world, while providing support packages for bartenders and others impacted by closures.
In an update released to the stock market, the firm told investors: “Widespread containment actions put in place by governments across the globe in March, including the closure of bars and restaurants, are having a significant impact on the performance of our business.
“Social distancing measures, including the closure of the on-trade channels, have been introduced in most of our markets. We are tracking changes in consumer behaviour during this time and adjusting our plans and resources in response.”
In Europe, Diageo revealed that around half of all sales on the continent are from pubs, bars and restaurants. But with the UK and others closing venues, this has now collapsed.
There has been a boost in sales through supermarkets, but this was cautioned with questions over whether it can be sustained longer term.
Elsewhere the firm noted: “In mainland China, we are beginning to see a very slow return of on-trade consumption, as restaurants and bars have started to gradually reopen.
“The significant impact on global travel retail, referred to in our 26 February update, has extended beyond Asia Pacific into other markets in March due to a steep drop in passenger numbers, as well as new travel restrictions imposed by many countries.”
Sales have also taken a dive in North America, India and two production sites in Nigeria have been shut.
Chief executive Ivan Menezes said: “During this challenging time, our top priority is to safeguard the health and well-being of our people, while taking necessary action to protect our business. I am confident in Diageo’s long-term strategy and our ability to move quickly in this difficult environment.
“We will continue to execute with discipline and invest prudently to ensure we are strongly positioned for a recovery in consumer demand. I am proud of the resilience and commitment of our people as they work hard to support our partners, customers and communities.”
William Ryder, equity analyst at Hargreaves Lansdown, said: “Governments all over the world have closed pubs and restaurants to combat the spread of Covid-19, and this has had a predictable impact on Diageo’s sales. While the proportion of sales made in these venues varies by region, the impact is fairly significant everywhere.
“This is unfortunate, but we see no reason why sales shouldn’t bounce back once the pubs reopen. The uptick in retail sales demonstrates the demand for Diageo’s products, although we think this will moderate once people can enjoy a drink with friends in the pub again instead of over Zoom.
“Diageo is likely to have a rough quarter or two, but its brands are strong enough to carry the group to a robust recovery once the virus passes. Fortunately, Diageo has no problem accessing liquidity, making it unlikely the group will come under any serious financial strain in the immediate future. However, if the shutdowns go on long enough even the most well-fortified balance sheets could find themselves a little unsteady.”
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