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Diageo’s lack of US whiskey focus could cause losses
Diageo’s focus on vodka rather than American whiskey could cause share losses in its key US market, analysts have warned.
Diageo’s focus on its vodka brand, including Smirnoff vodka, could lead to “share losses” in the US market
Ahead of the British group’s full-year 20013/14 financial results, analysts at UBS warn that while Diageo is predicted to have grown volumes in the region, its focus on its “highly competitive” vodka brands as opposed to American whiskey – the region’s fastest growing spirits category – could lead to “continued share losses”.
In the group’s vodka portfolio sits the world’s best-selling vodka brand, Smirnoff, and well as Ciroc and Ketel One labels. With regards to American whiskey, Diageo owns Bulleit Bourbon, George Dickel Tennessee Whiskey and small, boutique releases from the Orphan Barrel Distilling Company.
Today, analysts revealed their consensus prediction that Diageo will report £10.4 billion net sales for 2013/14, an organic net growth of 0.5%. The group will be officially announcing its full year financial results for 2013/14 next Thursday (31 July).
However, this could represent a significant net sales decline of around £1bn compared to 2012/13, when the group reported revenues of £11.4 bn.
UBS also predicted Diageo will reveal an overall volume decline of 2.5% for the year.
It is thought that Diageo’s performance in the beleaguered Western Europe region, which has hit the group’s sales since the start of the recession, will show “modest sequential improvement”.
Meanwhile analysts claim that Diageo visibility in the emerging markets remains low, echoing trends seen in the group’s third quarter results.
UBS also estimates that Diageo will see the greatest loss in sales in the Asia Pacific region (-7%), where the company has undertaken a destocking process due in China due to the country’s continued crackdown on conspicuous spending and gifting.
Earlier this year, Diageo announced that it intended to “delayer” the business in a bid to reduce costs by £200m a year by the end of fiscal year 2017. In the competitor conference in June, CEO Ivan Menezes indicated that the group would reinvest £50m, leaving £150m to fall to the bottom line over the next three years, which analysts at Nomura said are “a bit more than we expected”.
Last month, Diageo acquired India’s United Spirits, giving it an “unassailable” position as the world’s leading spirits producer by volume.