Blog: Diageo to sell Guinness? Here we go again
Olly Wehring | 4 September 2006
The future of Guinness is secure - despite the by now familiar speculation surrounding the iconic stout brand late last week.
The speculation has become a fixture of press conferences on Diageo’s half-year and annual results in recent years and with Guinness sales slumping in its Irish heartland over the last 12 months, murmurings about the brand’s future are growing ever louder.
Some industry watchers see Guinness - and Diageo’s wider beer business - as an anomaly in a portfolio which boasts some of the world’s top spirits brands. Chief executive Paul Walsh did little to dampen that belief when he insisted that the Diageo spirits cabinet would be its “prime focus” in the months ahead as it looks to build a presence in emerging markets such as Russia and China.
What’s more, it’s an open secret that Diageo is keen to add to its burgeoning wine stable, despite last year passing up the option to buy New Zealand’s Montana.
Given that context, as well as the poor performance of Guinness in Ireland - volumes down 8%, sales down 3% - it is easy to understand why some reckon the writing’s on the wall for the brand.
However, Walsh was quick to insist that he still saw a “huge advantage” in Diageo being present in spirits, wine and beer. “Total beverage alcohol is important and it’s here to stay,” he said at the London press conference last week.
Walsh pointed to sales growth of 4% from the company’s beer business, a result, he said, that “stacks up well against the global brewers”. Guinness volumes rose 7% in the US as Diageo successfully tapped into growing demand for imported beers across the Atlantic. Guinness also enjoyed continued popularity in Africa with sales up in Nigeria and Ghana. As Walsh said: “Guinness is more than Ireland and Ireland is more than Guinness.”
Sure, Guinness sales are suffering in Ireland and, to a lesser extent, in the UK but the brand has been hindered by issues including the Irish smoking ban and the shift from on- to off-trade consumption in both markets.
Diageo has proved adept at solving acute problems with brands or markets. For instance, after identifying South Korea - a key battleground for distillers - as a weak market last year, Diageo now leads the whisky category there. The company is now looking to revive Guinness in Ireland and the UK through marketing campaigns and product innovation.
In spite of its problems in Ireland, Guinness’ enduring popularity in a number of markets - despite steady price increases - means it acts as a cash cow for Diageo’s rising marketing spend behind brands like Johnnie Walker. It would be wise not to expect Diageo to be putting the ‘For Sale’ signs up outside the St. James Gate brewery in Dublin just yet.
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