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Whiskies, Tequila Drive Gains As Diageo Looks To 2018

December 5, 2017

After posting an acceleration in top-line growth in the key North American market over the past year, Diageo is looking to bolster its core stable of brands and stoke the progress of growth players like Bulleit, Buchanan’s and Don Julio.The North America region accounted for about one-third of Diageo’s total £12.1 billion ($16.3b) in sales and half of its £3.6 billion ($4.9b) in operating profit in its fiscal year ended in June.

Diageo’s North America sales grew by 3.4% for the fiscal year. While some observers have pointed to a slowdown for spirits sales in Nielsen channels, Diageo North America president Deirdre Mahlan recently noted that the industry is faring better in control states, which, like Nielsen, account for about 20% of the total spirits market. Mahlan expects the U.S. spirits category to sustain its current value growth of around 4% going forward.

Brown spirits are driving the biggest gains in the Diageo portfolio, with Crown Royal projected to rise 6% to 5.5 million cases this year (including flavors), according to Impact Databank. “While we expect Crown Royal’s growth to slow in fiscal 2018 as we lap the launch of Vanilla, we’re expanding Crown Royal outside its core markets into the Northeast and establishing it as a go-to status brand for African-American consumers,” Mahlan said.

Meanwhile, Bulleit, which unveiled its new $115-million, 750,000-case distillery in Shelbyville, Kentucky this past March, continues to soar, and is projected to increase 11% to 1.2 million cases this year. In Scotch whisky, Buchanan’s is expected to easily cross the half-million-case mark for 2017, having nearly doubled in size over the past five years.

Diageo is also targeting further growth in Tequila. While Don Julio is maintaining strong momentum with another year of double-digit progress, Diageo is looking to maximize the potential of new acquisition Casamigos, which it purchased for $1 billion (including performance-based payouts) earlier this year. “While it’s still early days, Casamigos continues its strong performance, growing 59% and 117% in the last three months in Nielsen and NABCA, respectively,” Mahlan noted. Impact Databank projects that Casamigos will rise 60% to 175,000 cases this year.

As with much of the industry, the vodka aisle continues to be a challenge for Diageo, with Smirnoff, Ketel One and Cîroc all projected to shed volume in 2017. The company plans to help Ketel One rebound by appealing to women and health-conscious consumers through its “Ketel your soda” initiative, which touts the brand’s high-quality ingredients. Diageo is also looking to go on the offensive behind Cîroc, and Mahlan is confident the brand has a strong future ahead of it. “The good news is that it still has strong brand equity and high trial-to-conversion among 21- to 39-year-old consumers,” she said. Indeed, according to Impact Databank, around 20% of the brand’s drinkers are 21-24 and 39% are 25-34. Going forward, Mahlan said, Diageo will be “targeting urban millennials with the goal of expanding Cîroc to be the vodka of Hispanic consumers, with a renewed focus on our key legacy variants—the unflavored variant, apple and peach.”—Daniel Marsteller & Shane English

Diageo – Key Brands in the U.S.
(millions of nine-liter cases)
Brand1 2016 2017E Percent
Change3
Smirnoff 9.35 9.30 -0.5%
Captain Morgan 5.84 5.88 0.8%
Crown Royal 5.16 5.47 6.0%
Ketel One 2.17 2.12 -2.3%
Johnnie Walker 1.75 1.78 1.6%
Cîroc 1.86 1.75 -5.9%
Tanqueray 1.50 1.50 0.2%
Baileys 1.27 1.31 2.4%
Bulleit 1.06 1.17 10.8%
Buchanan’s 0.49 0.55 12.9%
Don Julio 0.43 0.50 15.1%
Total Key Brands2 30.86 31.32 1.5%
1 includes flavors
2 addition of columns may not agree due to rounding
3 based on unrounded data

Source: IMPACT DATABANK

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