just On Call - Diageo chief admits "tougher than expected" year as China bites
Ivan Menezes was questioned by journalists in central London today, following the group's results
Diageo's CEO has admitted the year has been “tougher than expected” and defended the company's stake in baijiu brand Shuijingfang.
Speaking to journalists in London today, following the group's full-year results, Ivan Menezes acknowledged the company had struggled in some emerging markets, such as China, but predicted its “headwinds” will reduce.
The company revealed today it has written down the value of baijiu maker Shuijingfang, in which it has a 39.7% stake, by GBP264m (US$446.2m) as sales have suffered from China's anti-extravagance measures.
Asked whether building up a stake in Shuijingfang was a “mistake”, Menezes replied: “Not at all.”
He flagged that baijiu is an “enormous” category in China, accounting for 60% of the alcohol market. Menezes said the anti-extravagance measures had affected the “super premium” end of the market, where Shuijingfang has a "small" presence. However, other firms operating in this segment had cut prices, leading to a 78% fall in Shuijingfang's sales.
Looking ahead, Menezes said there was a “growth plan” for the brand, with two new cheaper variants recently added at around GBP50 a bottle to the core brand.
But he added: “There's still a lot of wealthy Chinese who really want a high-end baijiu.”
Meanwhile, Menezes dismissed reports about struggles for vodka in the US. Diageo saw its Smirnoff sales in the US slip by 6% over the full-year. “Lots has been written in the last few months about the 'end of vodka'... it's not true," he said. "Vodka in the US is growing at 4%. Whisk(e)y and vodka are still the two fastest-growing segments (in the US)."
On Guinness, Menezes said the stout's US sales had been hampered by the rise of craft beer. He also said that sales of Guinness Black Lager, launched last year, had been “disappointing”. He added: “It's not taken off as we expected.” But he said there are some “interesting innovations” planned for the brand in the US.
Asked by just-drinks if the brand was now a distraction to Diageo as a group, Menezes said: "Guinness is a wonderful global brand and we know how to build global brands. Our footprint and what this brand represents to us in Africa is hugely valuable to Diageo. I'm encouraged by the trends of Guinness in Africa.”
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