Diageo sales fail to return to growth

Diageo’s sales have recovered slightly during the last few months, although a continued slowdown in China, Russia and North America failed to return the group to growth and heavily impacted Johnnie Walker sales.

Sales of Johnnie Walker declined by 12% as a result of turbulence in Russia and China, and a strong comparable period in 2014

The British drinks group saw organic net sales come in at -0.1% for the six months to 31 December 2014, an improvement on the 1.5% sales decline felt in the first quarter of the year.

Volume also improved somewhat, with Diageo posting a -1.9% decline which was up from the negative -3.5% felt in Q1.

Diageo CEO Ivan Menezes said the group had “already taken action” to improve the performance of disappointing markets and brands, which contributed to the stronger second quarter results.

“I expect to maintain this momentum throughout the year,” Menezes said in the group’s H1 2014/15 financial update. “The half saw Diageo acquire control of USL, putting us in the position to create an iconic leader in spirits in an attractive market. We have also reached agreement to acquire all of Don Julio, which will significantly strengthen our position in one of our fastest growing categories.

“The quality of these results in a tough environment, with depletions ahead of shipments and improving cash flow, reinforce my confidence that Diageo can realise its full potential and deliver our performance ambition.”

Russia

Diageo noted the Russian consumer environment has been “severely impacted” by political and economic turmoil, resulting in a -12% sales decline for the group, driven largely by a -17% fall in Scotch sales.

Despite the steep decline, Johnnie Walker Red Label retains its leadership position in standard blends, while Diageo’s local rum Shark Tooth is now the third largest brand in its category in only the second year of trading.

China

Diageo’s baijiu brand Shuijingfang saw a return to growth in the half, with sales up 25% off the back of “weak performance” in the same period in 2013 and the success of new premium expression Master Distiller’s No.8. The brand accounts for 19% of Diageo’s sales in the region,

The group’s international brands however fared less well, with Scotch down 22% as austerity measures continue and on-trade closures abounded.

Meanwhile in Taiwan, Scotch sales were up 5%, driven by demand for The Singleton.

Menezes said: “We have reviewed our investment priorities in these markets to improve returns while also supporting long term growth drivers, such as the premiumisation of Scotch and expanding Scotch to new consumer occasions in China, and upweighted investment behind Johnnie Walker Red Label in Thailand to encourage consumers to step up to international brands from beer and local spirits.”

North America

Organic net sales remained static in North America in H1, “as a result of weaker pricing” and a strong first half in 2013.

Scotch shipments were down 9% in the period, which Diageo puts down to a stronger first half in 2013 that “benefitted from a number of innovations,” including Johnnie Walker Platinum and Gold Label Reserve.

While Johnnie Walker declined 17%, Buchanan’s saw 33% sales growth as its popularity among the Hispanic community boosted its position to second largest super-premium Scotch behind Johnnie Walker.

Sales of Tequila meanwhile were up 37%, driven by the success of Don Julio, which was up 21%.

Bulleit also drove an outstanding performance, with sales up 58% in the period.