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Diageo increases investment for Smirnoff vodka

Diageo is “putting investment into improving the trajectory” of Smirnoff vodka after the brand’s full-year sales declined once again.

Smirnoff’s organic net sales decreased by 2% in FY18

In the group’s full 2018 fiscal year, organic net sales of Smirnoff vodka fell by 2%, making it the only one of Diageo’s ‘global giants’ to decline in the year to 30 June 2018.

More broadly, vodka was Diageo’s only spirits category to decline in the period after sales of Ketel One and Cîroc fell by 1% and 2% respectively.

Speaking at a media briefing last week, Diageo CEO Ivan Menezes said the firm had “upweighted” its investment in order to turn the category around.

“There’s work to do but we feel confident about getting that improvement in vodka over the next few years,” he said.

Menezes continued: “Vodka is a highly competitive category. Overall, Smirnoff has broadly held its own over the years. We want this to be a high-quality recruiting brand in many parts of the world.

“In South Africa we are bringing a whole new campaign and packaging and innovation for the brand. In the US we upweighted our investment and we have some exciting things coming up for the brand in FY19.

“This is the most important brand in the vodka category and we are putting investment into improving the trajectory.”

In terms of volume sales, Smirnoff was in growth in the 2017 calendar year, hitting 26 million cases, up 2% compared to 2016 according to Brand Champions data. However, Cîroc declined by 17%.

Diageo’s Tequila and gin business experienced strong growth in FY18, when organic net sales grew by 40% and 16% for each category respectively.

The group’s Shui Jing Fang baijiu grew organic volumes by 60% after a “huge drop” in FY14, showing that the impact of the Chinese government’s austerity measures is waning.

“Baijiu is very profitable,” said Menezes. “We have a fabulous brand and company that’s growing really well.”

Last month, Diageo made an offer to increase its stake in Shui Jing Fang to up to 60%. The proposal is still under discussion.

Kathryn Mikells, chief financial officer at Diageo, said the group would continue to seek “bolt-on acquisitions”.

“We are seeing strong returns in the business so we want to make sure we are investing both organically and non organically,” she said, adding that Diageo would consider acquisitions across all categories, price points and geographies.

The UK-based firm completed its purchase of Casamigos Tequila last summer, and acquired the Pierde Almas mezcal and Belsazar vermouth brands earlier this year.

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