Diageo ‘optimistic’ despite ‘unnecessary’ UK tax hike

Don Julio owner Diageo remains “very optimistic” about sales in the UK despite the “unnecessary” 10.1% alcohol tax increase introduced on 1 August.

Diageo’s managing director, Nuno Teles, described the tax increase, which has seen the duty rate on spirits rise to £31.64 (US$38.18) per litre of pure alcohol, as “a blow to our consumers”.

However, thanks to the positive growth the firm recorded in its premium-plus segments through fiscal 2023, in tandem with the growing trend of premiumisation, Teles said Diageo remained “optimistic” that its customers will stick to the trend of “asking for more, and aiming to drink more sophisticated, high-quality products” despite the inflated price.

He added: “It’s a delight to see UK consumers adopting Tequila, and the Margarita in their top 10 favourite cocktails.

“For the first time, we’re seeing a generation of 18-25-years-olds drinking as many cocktails as they are beer.

“So in that context, taking alcohol duty up 10%, when 75% already goes into the government, it’s unnecessary, right? So we feel for our consumers, but we will continue to invest.”

Continued innovation

Diageo CEO Debra Crew confirmed the firm would continue to innovate, and recently launched two new products from its Tequila brands: Don Julio Rosado, and Casamigos Cristalino, which Crew described as a “first of its kind innovation”.

Don Julio Rosado is the brand’s new signature luxury reposado Tequila, which is aged for at least four months in ruby Port wine casks from the Douro wine region of northern Portugal.

It is described as offering a light fruit finish with a delicate pink hue, and targets the daytime occasion.

This release is said to be helping Diageo to build the luxury price ladder for Tequila in the US.

Meanwhile, Casamigos Cristalino is a super‐premium offering, which allows Diageo to expand the Tequila category in the US and lead it as ‘the brand of choice’, as consumers explore different flavours and serves.

Diageo said this also builds on the momentum of the fast‐growing cristalino sub‐segment within Tequila, of which the company was the architect in 2012 through the launch of Don Julio 70, a variant that Diageo said grew faster than the category and gained share in fiscal 2023.

Casamigos shortage

Crew noted: “We’ve been so short of Casamigos, we really haven’t been able to add to the portfolio at all, so we’re quite excited by this. It’s an aged Tequila, but it’s also filtered, so it has a very nice, smooth, creamy taste.”

Diageo saw a 19% rise in its organic net sales of Tequila in the year ending 30 June 2023, with strong performances from both Don Julio and Casamigos, which she described as “complementary” to one another, on account of their flavour profile differences.

Meanwhile in Europe, the region’s Tequila net sales doubled, and the category accounted for nearly a 10th of its organic net sales growth.

With Diageo’s Tequila business now its third‐largest category in net sales value, it has become the global ‘number one Tequila player’ by retail sales value, thanks to its two leading brands.

However, Crew noted that its other Tequila brands, DeLeón and 21 Seeds, have also played a part in the growth of the segment.

Despite the ongoing legal battle between Diageo and its DeLeón co-owner Sean ‘Diddy’ Combs, in which the rap star has alleged racial discrimination by the firm, Crew confirmed the brand “has performed very, very well this year”, and while on a smaller base, the brand has had “higher growth rates on a percentage basis than Casamigos and Don Julio”.