Western Europe recovery bolsters Diageo sales

30th January, 2014 by Becky Paskin

Diageo has seen a 1.8% sales increase in the first half of the financial year, as sales in Western Europe continue to recover.

Captain Morgan India

Sales of Captain Morgan in both established and emerging markets bolstered Diageo’s half-year results

The owner of Johnnie Walker and Captain Morgan reported net sales of £5.93bn in the six months to 31 December 2013, off the back of a “sustained performance in the US and improved performance in Western Europe”.

Growth drivers for the drinks group were from the super and ultra-premium segment, with Diageo’s reserve brands – including Johnnie Walker and Ciroc – up 18.5%.

Volume however declined by 3% on the previous year as emerging markets continued to prove a challenge.

“We have continued to demonstrate the strength of our broad portfolio and diverse global business in a period which saw a more challenging emerging market environment,” said Ivan Menezes, CEO of Diageo. “Sustained performance in the US and improved performance in Western Europe enabled Diageo to absorb the current challenges in some of our emerging markets.”

Meanwhile, Menezes outlined plans to reduce the costs by £200m a year by the end of fiscal 2017, to create a “more agile, accountable and effective organisation to deliver our performance ambition”. He did not reveal how the cost savings would be made.

Market breakdown

In the US, net sales of Diageo’s spirit brands grew 5% led by Johnnie Walker – following the launches of new super-premium variants such as Johnnie Walker Platinum Label and Johnnie Walker Gold Label Reserve – Buchanan’s, Ciroc and Ketel One. Diageo’s ultra-premium Tequila brand Don Julio also performed well with sales increase of 25%.

Meanwhile in Western Europe, the net sales decline seen over the last few years continued to slow to 1%, as the UK, France and Germany “continued to perform well”. The continuing challenge economies in Southern Europe impacted overall performance in the region, with volume and sales declines of 7% and 6%.

Scotch sales, which represent half of Diageo’s business in Southern Europe, fell by double digits, driven by a 14% decline in J&B sales. Tanqueray meanwhile grew by double digits as “the brand benefited from a new communication platform in the more vibrant gin category”.

“We continue to pursue our strategy to invest behind our premium core brands, our innovation agenda and our reserve portfolio,” said John Kennedy, president, Diageo Western Europe.

Diageo’s faced specific challenges in Asia Pacific, where sales delinked by 6%. “Chinese white spirits declined significantly due to the anti-extravagance measures and South East Asia was impacted by weakness in some markets and channels, including Thailand,” said Gilbert Ghostine, president, Diageo Asia Pacific.

Super- and ultra-premium Scotch growth in Greater China was fuelled by Johnnie Walker innovations and The Singleton, although overall sales for the region declined by 23%.

Latin America and Caribbean meanwhile saw sales growth of 8%, although Venezuela and Argentina “continue to be challenging”.

In Africa, Eastern Europe and Turkey, 17% sales increase of Captain Morgan was not enough to offset the declining beer market, attributing to net sales growth of just 2%.

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