Diageo sales fall despite double-digit Tequila growth
Johnnie Walker owner Diageo saw sales drop 4.5% in the second half of 2020 as double-digit Tequila growth failed to offset the impact of Covid-19 on Scotch whisky.
The Don Julio Tequila owner reported net sales of £6.9 billion (US$9.4bn) in the six months to 31 December 2020, down 4.5% on the same period in 2019. According to Diageo, organic growth of 1% during H1 was offset by ‘unfavourable exchange’.
The company’s reported operating profit for the six-month period dropped 8.3% to £2.2bn (US$3bn).
Spirits sales during H1 declined by 2%, hit by a 13% drop in Scotch whisky sales as a result of the impact of Covid-19 on international travel, particularly in Asia Pacific. Johnnie Walker’s organic sales fell by 12%.
Tequila, which represents 7% of Diageo’s net sales, increased by 56% during H1 after Don Julio and Casamigos posted growth of 35% and 126% respectively.
Vodka sales remained ‘broadly flat’ through the six months to the end of December, with Smirnoff declining by 8%. Rum sales decreased 3% and liqueur sales grew 5%, boosted by Baileys.
Gin sales grew 2% in H1, with growth across all regions except Europe and Turkey. Diageo’s ready-to-drink products rose 13%, driven by North America and Australia. US whiskey rose by 5%, bolstered by Bulleit Bourbon, and Canadian whisky was up by 3% on an organic basis.
Regionally, Diageo reported sales in North America were up 8% to £199 million (US$272m), the only region to post growth for the period. North American growth was driven by strong consumer demand, ‘positive category mix’ and restocking by distributors and retailers.
In Europe, sales dropped 13%, despite ‘good net sales growth’ in Turkey, Northern Europe and Great Britain. However, Ireland, Southern Europe and Eastern Europe were ‘significantly impacted’ by on-trade closures. Travel retail sales in Europe declined 72%.
Africa net sales remained flat, while Latin America and Caribbean sales fell by 15%.
In Asia Pacific, net sales decreased 6% as declines in travel retail, the Middle East, Southeast Asia and North Asia offset ‘strong growth in greater China and Australia’.
‘Challenging operating environment’
Ivan Menezes, chief executive of Diageo, said: “We delivered a strong performance in a challenging operating environment, returning to top-line organic sales growth during the half. We rapidly pivoted to the channels and occasions most relevant to consumers and invested behind new opportunities. This more than offset the impact of on-trade restrictions and the decline in travel retail.
“North America, our largest market, performed particularly strongly and ahead of our expectations. Consumer demand has been resilient and the spirits category continues to gain share of total beverage alcohol.
“Across other regions we delivered strong sequential improvement compared to the second half of fiscal 20. This reflects improved market share performance through excellent execution in the off-trade channel, and the partial reopening of the on-trade channel in certain markets.”
Looking to the second half of fiscal year, Menezes said the firm expects “ongoing volatility and disruption”, mainly in the on-trade.
He added: “The medium and long-term growth drivers and opportunities for our business remain intact and I am confident in our strategy, the resilience of our business and Diageo’s ability to emerge stronger.”
During the final six months of 2020, Diageo completed the acquisition of Davos Brands, co-owner of Aviation Gin with actor Ryan Reynolds.