UK-based beer and spirits giant Diageo has defended its premiumisation strategy despite a weak performance in the first half of fiscal 2024.
At a London briefing following the publication of Diageo’s half-year results earlier today (30 January), CEO Debra Crew told reporters the company “still feels good about premiumisation overall” but acknowledged some consumers have been seeking cheaper products.
“There are pockets of downtrending and that’s what we’re navigating through,” she said. “Premiumisation is still there but what I would say is consumers are being smart about how they shop. They’re being very choiceful in that, so we’re still seeing a lot of normalising activity.”
In the six months ended 31 December, the Guinness and Captain Morgan maker saw its sales volumes drop 9% and 5% organically.
Diageo’s net sales sat at $10.96bn, a drop of 1.4% on a reported basis and 0.6% on an organic basis.
Operating profit was down 11% at $3.32bn, while operating profit before exceptional items declined 5% organically and 7% on a reported basis. City analysts had forecasted a dip of 4.7%.
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In the US, net sales from spirits were down 2% having dropped across a range of areas. These include a drop of 5% in Tequila, 4% in vodka, 2% for Crown Royal whisky, and 13% for Johnnie Walker Scotch.
When asked whether the numbers could affect Diageo’s focus on “premium and above” products, Crew said: “During Covid, people didn’t have a lot of other things to spend money on and so there was quite a bit of what we call aspirational consumption that is really working its way out and you’re seeing a more normal level of growth.”
However, she added: “We believe in premiumisation. The US market is a good example of this super-premium-plus price. That’s what’s growing. If you look at premium and below, it’s actually in decline.”
Achieving “high-quality share growth”
In its statement on the fiscal results, Diageo spoke of its aim to capture to “high-quality share growth”.
When Just Drinks asked what the company meant by the term, CFO Lavanya Chandrashekar said: “What it doesn’t mean… is chasing share at all costs.”
“If other competitors or other players in the market [are] deep discounting, we will not follow that because that’s bad for our brands, that hurts brand equity.”
Chandrashekar added: “If consumers are looking up or interested in lower price points, we have the portfolio to support it. We don’t have to a deep discount to be able to win share.”
Future opportunities for Tequila
Diageo’s net sales in North America from Tequila fell 5% as Casamigos’ sales slid 14%. The company said the brand was “lapping double-digit growth as distributors replenished inventory in the prior year”.
Despite the dip, Crew was confident that the category would continue to perform. “We’ve really acquired our way into this portfolio, but we feel really good about having a nice tequila opportunity across price points”, she said.
She added Diageo planned to continue to “expand into our super-premium price point.”
“We now own 100% of DeLeón which we’re very excited about”, she said. “That’s a brand that in fiscal 2023 grew over 150%. Then, of course, we had the dispute which we’re very pleased [is] behind us.”
The spat between the group and US rapper Sean ‘Diddy’ Combs, which first arose last June over accusations of racism, was settled earlier this month.
When asked by Just Drinks where Diageo saw the strongest sales opportunities for the spirit, Crew said: “We talked about taking Tequila around the world and we are seeing it’s a very versatile liquid.”
“In Asia, most of the growth was really around [the premium product] Don Julio 1942… We’ve tied in with various DJs and it really has resonated in that kind of pop culture. That’s very different to if you were hanging around southern Europe over the summer, you couldn’t help but trip over a Paloma cocktail.”
She added: “We’re seeing [Tequila] play out quite different and we’re really following the consumer and amplifying it where it seems to catch.”
Gin performance in GB
Commenting on the double-digit organic volume decline for gin brands Gordon’s and Tanqueray in Great Britain, regional managing director Nuno Teles said he didn’t see “anything wrong about gin”.
He added that the category was seeing “the highest penetration” with “11m consumers” in region and that it remained “the most loved category in GB”.