Latin America drags Diageo H1 sales down

Don Julio owner Diageo saw organic net sales drop by 0.6% in the first half of fiscal 2024 as spirits plummeted in Latin America and the Caribbean.

Reported net sales for the first half of Diageo’s fiscal 2024 year (July-December 2023) dipped by 1.4% to US$11 billion, due to a US$167 million unfavourable foreign exchange rate and a 23% drop in the Latin America and Caribbean (LAC) region. Diageo issued a trading statement in November, warning of a double-digit drop in LAC.

Within the LAC region, spirits sales fell by a quarter (25%) and the ready-to-drink (RTD) segment dropped by 13%, while beer grew by 45%.

Without accounting for LAC, the group’s total organic sales rose slightly by 2.5%.

The company attributed the decrease in LAC to a strong growth comparison basis last year when sales rose by double digits, as well as consumers drinking less and trading down in the current economic climate.

In the year ending 30 June 2023, Diageo reported 10.7% net sales growth, with a 9% increase in LAC.

In the six months to December 2023, organic operating profit declined by 5.4% to US$3.3bn, but excluding LAC, it rose by 0.9%.

Debra Crew, chief executive, called the six months “challenging” after “strong growth” in the previous year and during an “uneven global consumer environment”.

After having high inventory levels in LAC, Diageo will reduce its inventory in the region to “more appropriate levels” by the end of fiscal 2024, Crew noted.

The group noted organic sales growth in Europe (up 3%), Asia Pacific (up 6%) and Africa (up 9%).

Sales in North America dropped by 2% but marked an improvement on the second half of fiscal 2023.

Speaking about North America, Crew said the company is focused on “returning to high-quality share growth as consumer behaviour continues to normalise in our largest region”.

Earlier this month, Diageo and Sean ‘Diddy’ Combs agreed to settle their lawsuits, ending any ties between the rapper and the company’s DeLeón Tequila and Cîroc Vodka brands.

On 16 January 2024, Diageo agreed to purchase the remaining 50% stake in DeLeón from Combs for approximately US$200m, making it the full owner of the brand.

Major spirits segments decline

The only spirits categories to grow were Chinese white spirits (up by 32%), Indian-made foreign liquor (up by 10%) and US whiskey (up by 6%), with the latter driven by Bulleit’s 19% growth. Beer rose by 14%, while the RTD portfolio dipped by 3%.

Scotch was the worst-performing spirits segment, declining organically by 10% mainly due to LAC. Excluding the region, Scotch sales slipped by 5%.

Johnnie Walker reported a 5% drop, mostly due to LAC, followed by North America.

Blended Scotch whisky Buchanan’s plummeted by 29%. Single malt sales fell by 12%, driven by Europe and North America. Black & White whisky also decreased by 12%.

Tequila sales fell by 6%, due to declines in LAC and North America, which were offset in part by growth in all other regions. Casamigos fell by 13% and Don Julio was down by 1%.

Vodka, rum and gin each reported a 5% drop, with the former affected by Cîroc (down by 23%) in North America and Europe. Rum volumes declined in all regions, led by Europe, with Captain Morgan decreasing by 3%.

Gordon’s gin fell by 4% while Tanqueray took a 10% tumble.

Liqueurs also dipped by 1%, driven by Baileys in LAC, Asia Pacific and Africa, which was largely offset by 5% growth for the brand in North America.

Diageo estimates organic net sales to gradually improve in the second half of fiscal 2024. Organic profit is expected to decrease but the rate of decline is predicted to improve.

LAC sales are anticipated to fall by between 10% and 20% in the next six months of the group’s financial year.

Crew added: “Looking ahead to the second half of fiscal 24, despite continued global economic volatility, we expect to deliver improvement in organic net sales and organic operating profit growth at the group level, compared to the first half. While the macro environment will continue to present challenges, I am confident that we remain well-positioned and resilient for the long term.

“We are diversified by category, pricepoint and region and will continue to invest behind our iconic brands to maintain our position as an industry leader in total beverage alcohol, an attractive sector with a long runway for growth.”