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Diageo Rides Premium Progress To 3 Percent U.S. Sales Growth For FY

August 25, 2011

Despite continuing economic headwinds, Diageo rode improved operating margin driven by cost cuts and a marketing push behind its key brands to solid sales growth in the U.S. market in its fiscal full year, ended June 30. U.S. net spirits sales for the global drinks giant came in up 4% on an organic basis, led by a strong performance at the premium end by brands like Cîroc, Crown Royal Black, Buchanan’s and the silver and super-premium variants of Jose Cuervo.

Diageo’s U.S. spirits volume held steady over period, as Smirnoff, Johnnie Walker, Captain Morgan, Ketel One and Tanqueray were all either flat or down across the group’s North American region, resulting in a loss of share in vodka and rum. But those results were offset by torrid growth for Cîroc, which more than doubled in size, and Buchanan’s, which grew 37% by volume. Guinness’s 3% volume gain drove a 1% rise in Diageo’s North American beer volume overall, while its wine (-4%) and RTD (-3%) businesses struggled. (Diageo has moved to restructure its U.S. wine business of late, most recently selling Edna Valley Vineyard to E&J Gallo in June.) Total organic net sales growth for Diageo NA came in up 3% to £3.3 billion ($4.7b).

“While overall consumer confidence remains subdued we have seen some recovery and, importantly for our business, this recovery has been stronger in the premium, and especially the super-premium, segments,” said Ivan Menezes, president, Diageo North America. Menezes credited a 7% rise in marketing spend, mostly behind key brands like Cîroc, Ketel One, Smirnoff and the Cuervo silver variants with buttressing sales.

Meanwhile, Diageo has made changes in its U.S. route to market and cut production costs, including plant closings in Maryland and California. Those initiatives have led to “good cost savings,” the company said, and more streamlining may follow. Route to market alterations have included a consolidation of Diageo’s distribution across U.S. control states with Southern Wine & Spirits this summer, as well as a shift from a geographically-aligned sales approach to a distributor-facing model, which took effect July 1.

Turning to Diageo’s global business, emerging market growth drove an overall 3% increase in volume over the full year, while net sales rose 5% on an organic basis to £9.94 billion ($14.3b). On a volume basis, Diageo’s Asia Pacific and International regions (the latter including Latin America, Africa and the Middle East) both jumped 9%, while Europe, down 2%, continued to be weighed down by tough conditions in markets like Spain and Greece (outside those markets, the group’s European sales rose). Diageo’s operating profit for the full year was up 1% to £2.6 billion ($3.7b).

Diageo North America – Top 10 Distilled Spirit Brands
(52 weeks ending 7 August 2011 in food/drug stores)
Dollar
Rank
Brand Type Dollar
Sales
(millions)
Percent
Change
Nine-Liter
Case
Volume
(thousands)
Percent
Change
1 Smirnoff1 Vodka $189.9 -1.2% 1,599 -1.5%
2 Captain Morgan1 Rum 122.2 * 836 -0.3%
3 Crown Royal Canadian Whisky 76.5 4.3% 288 2.0%
4 Jose Cuervo Tequila 73.6 -6.5% 440 -5.8%
5 Baileys Liqueur 46.0 1.3% 210 1.6%
6 Ketel One1 Vodka 45.2 4.2% 202 7.4%
7 Jose Cuervo Margaritas2 Prepared Cocktail 41.9 -1.5% 497 -3.7%
8 Seagram’s 7 Crown Blended Whiskey 39.7 -1.0% 356 -2.5%
9 Johnnie Walker3 Scotch Whisky 31.1 -1.1% 113 -4.8%
10 Popov Vodka 28.2 -14.3% 408 -15.9%
Total Top 104 $694.3 -1.1% 4,950 -2.8%
*less than 0.05% decline
1includes flavors
2includes Authentic and Golden
3includes Black, Red, Blue, Green, Gold and Swing
4addition of columns may not agree due to rounding

Source: SymphonyIRI

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