‘Weak’ emerging markets hit Diageo sales

Diageo has seen its sales decline in the third financial quarter due to various challenges in the Asia Pacific markets.

Ivan Menezes, CEO of Diageo has seen sales slip in Q3 due to “weakness” in the emerging markets

The UK drinks giant today reported an overall 1.3% fall in third-quarter sales and a huge 19% decline in the Asia Pacific region in the three months leading to 31 March 2014.

Diageo, producer Johnnie Walker Scotch and Smirnoff vodka, has blamed the tumble on political instability in Thailand and “lower trade confidence” across a number of other markets, including China which is experiencing an on-going government crackdown on conspicuous spending and gifting.

A stronger performance was reported in Korea, which “kept its positive momentum”, India, the Middle East, and global travel retail, all of which experienced double digit growth.

In the drinks group’s largest and “most resilient” market, the US, sales rose 1.2%, while Western Europe, which has been described as “improving slowly but consistently”, saw the same increase.

Sales in Latin America and the Caribbean surged 27% due to further improvements in Brazil and a weak comparative performance in the same period last year.

Meanwhile, the developing markets of Africa, Eastern Europe and Turkey experienced a 5.2% decline.

Economic weakness

Currency and economic weakness were said to have impacted “consumer confidence” across the emerging markets, while consumer trends in the developed were “in line with those in the first half”.

Sales were also down in Russia due to an economic slowdown and currency weakness, a trend that was reflected in South Africa.

“Our performance reflects the challenging environment we are operating in,” said Ivan Menezes, Diageo CEO.

“The current emerging market weakness does not reduce our confidence in the long term growth opportunities of these markets and we have continued to invest to build our brands and routes to consumer for the future.

“Current trends will however impact top line growth this financial year, but strong management of our cost base means that we remain committed to the delivery of our margin expansion goals.”

Menezes added that these latest financial results have increased Diageo’s determination to “delayer” the business in a bid to reduce costs by £200m a year by the end of fiscal 2017.

It was announced this week that Diageo would be bidding £1.13 billion to increase its controlling stake in India’s United Spirits.