‘Outlook uncertain’ for Diageo in Russia

29th September, 2016 by Amy Hopkins

Diageo faces “challenges and uncertain growth prospects in the near term” in Russia and Turkey, the group’s president of Europe, Russia and Turkey has said.

John Kennedy has spoken of an "uncertain outlook" for Diageo in Russia

John Kennedy has spoken of an “uncertain outlook” for Diageo in Russia

Speaking to investors earlier this month, John Kennedy said that Russia represents 1% of the group’s total net sales. In Diageo’s full 2016 fiscal year, reported net sales to the country fell 12% due to the devaluation of the rouble.

‘[C]onditions remain challenging and the outlook is uncertain,” he said. “Our approach here is to continue to enhance our strong route to consumer and position ourselves well to be ready for when the economy does recover.

“We have the appropriate cost base now and are focused on a couple of key parts of the portfolio, particularly Scotch and reserve. Scotch is the core of our business; it represents over 60% of turnover. Johnnie Walker is our largest brand and held share over the years, supported by strong performance from the super deluxe range.

“Reserve brands overall represent about 10% of the business, but are growing at 30% – so a promising trend there.”

Despite geo-political turbulence in Turkey and a decrease in travellers to the country, Diageo’s net sales grew by 6% thanks to the strong performance of its raki and Scotch businesses.

“However, we do see uncertainty right now,” added Kennedy. “The political situation will likely have a impact locally, but also it’s created a sharp reduction in tourism that we have been seeing throughout the summer.”

Kennedy said that “security unrest” in Turkey stretches “beyond tourism”, meaning the country has also experienced a downturn in its domestic on-trade. However, raki, which is largely consumed in restaurants, has “proven pretty resilient”, with categories such as vodka most impacted by the on-trade downturn.

Overall, Kennedy said Diageo has a “strong business” across Europe, Russia and Turkey, giving him “confidence” that the group will meet its overall mid-term goals.

He also addressed the UK’s vote to leave the European Union. “[W]e’re not complacent about Brexit, and do believe that, medium term, there are things that we need to be tuned into,” said Kennedy.

“Our current trading does not show any significant downturn, either in GB or on the continent. In terms of our confidence in this year’s fiscal plan, it remains. But it is something that we’re staying very close to.”

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