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Tougher Global Conditions Slow Diageo’s First Half Results, But U.S. Delivers 6% Growth

January 30, 2014

Challenging conditions in key emerging markets like China tempered Diageo’s results for the six months through December, its fiscal first half, but a robust 6% advance in the U.S. market helped its overall net sales rise 2% to £5.9 billion ($9.7b) for the period.

Diageo’s strong performance across its U.S. spirits and wine business was driven by a 26% increase within its reserve brand stable, including Cîroc (+16%), Bulleit (+59%), Ketel One (+7%) and Johnnie Walker (+16%). Cîroc was boosted by the recent launch of its Amaretto flavor, while Johnnie Walker benefited from an increased marketing spend and the rollouts of upscale extensions Platinum Label and Gold Label Reserve.

Buchanan’s Scotch whisky, Captain Morgan and Guinness also saw solid increases, advancing 19%, 3% and 4% in North America respectively. Captain Morgan enjoyed higher shipments during the period as it rolled out a white rum extension to distributors ahead of its launch this month.

Diageo’s U.S. wine business advanced in the first half, with sales rising 5%. On the more challenging side, Smirnoff’s sales dipped 5% in North America, as it elected to hold pricing steady amid increasingly competitive conditions in the standard vodka category.

While Diageo also made gains in Latin America and Caribbean, as well as Africa, Eastern Europe and Turkey, the picture was less bright elsewhere around the world, notably in Asia Pacific, where sales slipped 6% owing to a significant decline in China’s local white spirits market following a crackdown on government entertaining.

With its overall sales missing estimates, Diageo CEO Ivan Menezes said the group expects “some top line improvement in the second half.” He also announced a new streamlining initiative across the company looking ahead. “Over the next two months we will set out detailed plans to simplify our processes and de-layer our organization,” Menezes said.

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