Editor's Viewpoint - Scotch Whisky's Slipping Crown: Convenient Timing for Diageo
Slipping Scotch whisky sales may have arrived at an acceptable time for Diageo
Back in April, when the Scotch Whisky Association (SWA) released 2013's export sales figures for the category, many observers expressed disappointment, but not necessarily surprise, at the numbers.
A 0.2% slip for Scotch exports - although volumes rose by 3% - was blamed by the trade body on “some economic headwinds” in many of the category's main markets. More specifically, in the key market of China, “slower economic growth and government austerity measures” drove an almost 30% fall in value sales.
Fast forward to last month, and half-year export figures for this year made even more worrying reading: The 11% drop in value sales was compounded by a 5.5% decrease in sales in volume terms.
When, in 2012, the company launched a five-year, GBP1bn (US$1.55bn) programme to boost its capacity in Scotland, the future for Scotch couldn't have been brighter, even moreso for Diageo, which was outperfoming the broader market at the time.
Those heady days of two years ago have faded, however, to be replaced by a grimmer reality today.
While Diageo is not alone in having to weather these troubled times for Scotch, there is every possibility that this bump in the road has come at a fortuitous time for the drinks giant.
At the start of this year, CEO Ivan Menezes announced that the firm would target savings of GBP200m (US$331.4m) per year by the end of its fiscal 2016-2017. The need for savings was underlined in July, when full-year results showed a near-15% slide in profits on an almost-10% drop in sales.
The company was at pains to point out to me last week that the funds remain in place for the five-year programme in Scotland, but that it “will continue to review and adjust the timing of ... our investment programme to ... retain the alignment between growth in production volumes and growth in demand.”.
It may be harsh and yet to fair to say, then, that what is bad news for the broader Scotch category could be not-so-bad news for Diageo right now.
Late yesterday, Diageo announced the divestment of part of its wine operations to Australia-based Treasury Wine Estates (TWE). Here, we take a closer look at what the deal includes: ...
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