Diageo’s CEO Debra Crew has warned that consumers are facing an “extraordinary environment”, says Madeleine Speed in the Financial Times. The drinks group’s shares lost almost a tenth after it produced its first global drop in sales since 2020. Revenue in the year to 30 June slipped by 1.4% to $20.3 billion, while the volume of drinks sold dropped by 5% as consumers lowered spending. The fall was very steep in Latin America, where net sales plummeted by 15%.
What's next for Diageo?
While Crew thinks that Diageo will eventually “get back on track” once the consumer environment improves, this could take time, and the outlook for the next year is also “grim”. Crew has had a controversial first year as CEO, say Aimee Donnellan and George Hay on Breakingviews. While her appointment last June was hailed “as a shining example of how to hand over power”, the group’s share price has since fallen by 30%. Of course, she can argue that Diageo’s headaches “are not excessive relative to its rivals”, with Pernod Ricard’s share price down 40% and Rémy Cointreau’s off 54%. China “is displaying less appetite for foreign spirits” while US consumers “are reducing expensive discretionary spending”.
Can Diageo take it up a scotch?
But this tough environment throws into question Diageo’s long-term assumption “that richer consumers will increasingly buy pricier drinks”. Crew could also have tempered the decline in Latin America if she had hiked marketing spending there rather than reducing it. Diageo’s “weak” results are “disappointing” and a reflection of the “ongoing short-term challenges facing the spirits industry”, says Killik & Co’s Mark Nelson. Nevertheless, overall sales of alcoholic drinks are still set “to grow at an above GDP rate over the medium term”, while spirits, particularly premium spirits, “are forecast to grow even faster”. Diageo also has a “strong” portfolio of spirits brands and “attractive” emerging-markets exposure, especially in India and, in Guinness, it has “one of the few truly differentiated brands in beer”.
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