Diageo growth spurred by emerging middle classes

Diageo, the world’s biggest drinks group, has reported steady and strong growth in its interim six-month results, thanks to premiumisation in the US and a growing band of emerging middle class consumers.

Johnnie Walker’s popularity in emerging markets has spurred Diageo’s spirits growth

The owner of Smirnoff vodka and Johnnie Walker Scotch saw like-for-like sales grow 5% to £6.03bn during the first six months of its financial year, to 31 December 2012.

Diageo saw the bulk of its sales growth emerge from Latin America and the Caribbean (18%) and Africa (10%), where the group has been focusing on targeting emerging middle class consumers seeking more premium offerings such as its Snapps RTD in Africa and Ypioca Cachaca, which it acquired in May last year.

Asia Pacific delivered 6% net sales growth and North America 5%, while Europe continued to struggle with several weak economies, and shrank by 2% during the period.

“These results reflect the global strength of our strategic brands, our leadership in the US spirits market and our increasing presence in the fastest growing markets of the world,” said Paul Walsh, CEO of Diageo. “Our expanding reach to emerging middle class consumers in faster growing markets was the key driver of our volume growth, while net sales growth was driven by our pricing strategy and premiumisation, especially in the US. This drove gross margin expansion, which together with our continued focus on operating efficiencies, delivered operating margin improvement.”

Diageo’s overall spirits portfolio, which accounts for 70% of the group’s sales, grew by 2% in volume, delivering an 8% rise in organic net sales. The results were driven by the continued success of Johnnie Walker, sales of which grew by 14%, Buchanan’s whisky (30%), Bushmills Irish whiskey (17%), Ketel One vodka (13%) and Ciroc vodka (17%).

“This is a strong set of results, confirming our medium term guidance and supporting our decision to increase the interim dividend by 9%,” Walsh added.