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Diageo Sales, Volume Slip In U.S., But Leading Brands Improve

January 28, 2016

Diageo’s U.S. spirits volume declined by 2% in its fiscal first half, amid the company’s decision to dramatically reduce shipments of new products such as Ciroc Apple. However, several of its key brands improved their performance, including Smirnoff (volume up 2% on an organic basis, net sales up 4%) and Captain Morgan (volume up 3%, sales up 1%).

In Diageo’s year-earlier fiscal first half (ending December 31, 2014), the company shipped roughly 750,000 cases of Ciroc’s new Pineapple flavor extension. But in this year’s first half, Diageo shipped only 250,000 cases of its new Ciroc Apple offering. This change reflects what Diageo calls a move to a “replenishment model” on new products. Largely as a result of this shift, Ciroc’s volume and net sales fell sharply—by 42% and 43%, respectively.

Last summer, the U.S. Securities and Exchange Commission launched a probe to investigate whether Diageo had been over-shipping inventory in the U.S. market in order to boost its results. Diageo said at the time that it was fully cooperating with the SEC’s requests for information.

Along with Smirnoff and Captain Morgan—which has been helped by the launch of Cannon Blast, a product designed for shot consumption—several other leading brands carved out solid gains in North America, including Bulleit Bourbon (volume up 24%, net sales up 27%), Don Julio Tequila (+25% by volume, +28% by value) and Buchanan’s Scotch whisky (+4% by volume, +9% by value). Sales and volume for Crown Royal both advanced by 8%, propelled by the fast rise of its Regal Apple extension.

Volumes were also on the rise for Baileys (+2%), Tanqueray (+1%) and, on the beer side, for Guinness (+1%).

Johnnie Walker’s struggles continued amid a tough environment for blended Scotch, as the brand’s volume fell by 6%. Still, driven by strong growth for the franchise’s super-deluxe variants, Johnnie Walker’s net sales were on par with the year-earlier period.

Globally, Diageo enjoyed stronger results than in the U.S., which accounts for roughly one-third of its net sales. The company’s overall volume and net sales grew by 1% and 2% on an organic basis, respectively, with Africa and Latin America/Caribbean enjoying particularly solid progress. Net sales were also up in Europe (including Turkey and Russia) and Asia—by 3% and 2%, respectively.

Diageo North America began calendar 2016 under new leadership, as Deirdre Mahlan, who previously had been Diageo PLC’s CFO, succeeded the retiring Larry Schwartz as Diageo NA president.

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